10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2022

OR

 

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

 

For the transition period from to

Commission File Number: 001-39385

 

RELAY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-3923475

(State or other jurisdiction of
incorporation or organization)

 

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

 

399 Binney Street, 2nd Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 370-8837

Registrant’s telephone number, including area code

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001 per share

 

RLAY

 

Nasdaq Global Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 April 29, 2022, the registrant had 108,658,732 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

 

2

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

12

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20

Item 4.

 

Controls and Procedures

 

20

PART II.

 

OTHER INFORMATION

 

22

Item 1.

 

Legal Proceedings

 

22

Item 1A.

 

Risk Factors

 

22

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

64

Item 5.

 

Other Information

 

64

Item 6.

 

Exhibits

 

65

Signatures

 

66

 

i


 

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

We have never successfully completed any clinical trials, and we may be unable to do so for any product candidates we develop. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
Positive data from preclinical or early clinical studies of our product candidates are not necessarily predictive of the results of later clinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive data from our preclinical or early clinical studies of our product candidates in our future clinical trials, we will be unable to successfully develop, obtain regulatory approval for and commercialize our product candidates.
Our current or future clinical trials may reveal significant adverse events not seen in our preclinical or other nonclinical studies or early clinical data and may result in a safety profile that would inhibit regulatory approval or market acceptance of any of our product candidates.
Although we intend to explore other therapeutic opportunities, in addition to the product candidates that we are currently developing, we may fail to identify viable new product candidates for clinical development for a number of reasons. If we fail to identify additional potential product candidates, our business could be materially harmed.
The incidence and prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
If we are not able to obtain, or if delays occur in obtaining, required regulatory approvals for our product candidates, we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.
Under our Amended and Restated Collaboration and License Agreement, or the DESRES Agreement, with D. E. Shaw Research, LLC, or D. E. Shaw Research, we collaborate with D. E. Shaw Research to rapidly develop various protein models, a process that depends on D. E. Shaw Research’s use of their proprietary supercomputer, Anton 2. A termination of the DESRES Agreement could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We rely on third parties to conduct our ongoing clinical trials of RLY-1971, RLY-4008 and RLY-2608 and expect to rely on third parties to conduct future clinical trials, as well as investigator-sponsored clinical trials of our product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We contract with third parties for the manufacture of our product candidates for preclinical development, clinical testing, and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We have and may enter into other collaborations with third parties for the research, development, manufacture and commercialization of one or more of our programs or product candidates. If these collaborations are not successful, our business could be adversely affected.
We are a biopharmaceutical company with a limited operating history. We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future. We have no products approved for commercial sale and have not generated any revenue from product sales.
We will need to raise substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate some of our product development programs or commercialization efforts.
The ongoing COVID-19 pandemic has impacted our business and any future pandemic, epidemic, or outbreak of an infectious disease could similarly affect our business and our financial results and could cause further disruption to the development of our product candidates.

ii


 

Global economic uncertainty or political instability could adversely affect our business, financial condition or results of operations.
If we are unable to adequately protect our proprietary technology or obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products will be impaired.
Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to post-market study requirements, marketing and labeling restrictions, and even recall or market withdrawal if unanticipated safety issues are discovered following approval. In addition, we may be subject to penalties or other enforcement action if we fail to comply with regulatory requirements.

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:

the initiation, timing, progress, results, and cost of our research and development programs and our current and future preclinical and clinical studies, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
the identification of research priorities and application of a risk-mitigated strategy to efficiently discover and develop product candidates, including by applying learnings from one program to other programs and from one modality to our other modalities;
the potential safety and efficacy of our product candidates and the therapeutic implications of clinical and preclinical data;
the manufacture of our drug substances, delivery vehicles, and product candidates for preclinical use, for clinical trials and on a larger scale for commercial use, if approved;
our relationships with our third-party strategic collaborators and their ability to continue research and development activities relating to our development candidates and product candidates;
the funding for our operations necessary to complete further development and commercialization of our product candidates;
our plans to seek regulatory approval of our product candidates;
the pricing and reimbursement of our product candidates, if approved;
the implementation of our business model, and strategic plans for our business, product candidates, and technology;
the scope of protection for intellectual property rights covering our product candidates and technology;
estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;
the potential benefits of strategic collaboration agreements with collaborators with development, regulatory and commercialization expertise;
future agreements with third parties in connection with the commercialization of product candidates and any other approved product;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
our financial performance;
the rate and degree of market acceptance of our product candidates;
regulatory developments in the United States and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
our ability to produce our products or product candidates with advantages in turnaround times or manufacturing cost;
the success of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
the impact of laws and regulations on our business and programs;
developments relating to our competitors and our industry;
the effect of the ongoing COVID-19 pandemic and the current conflict between Russia and Ukraine, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “will,” “could,” “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”, those listed below 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

iv


 

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.

v


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Relay Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

119,445

 

 

$

280,119

 

Investments

 

 

778,733

 

 

 

677,954

 

Accounts receivable

 

 

269

 

 

 

403

 

Contract asset

 

 

4,677

 

 

 

4,537

 

Prepaid expenses and other current assets

 

 

12,663

 

 

 

13,229

 

Total current assets

 

 

915,787

 

 

 

976,242

 

Property and equipment, net

 

 

8,904

 

 

 

6,543

 

Operating lease assets

 

 

20,309

 

 

 

20,780

 

Restricted cash

 

 

2,578

 

 

 

2,578

 

Intangible asset

 

 

2,300

 

 

 

2,300

 

Total assets

 

$

949,878

 

 

$

1,008,443

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,053

 

 

$

8,276

 

Accrued expenses

 

 

15,217

 

 

 

13,557

 

Operating lease liabilities

 

 

1,922

 

 

 

1,844

 

Deferred revenue

 

 

166

 

 

 

248

 

Other current liabilities

 

 

16,332

 

 

 

396

 

Total current liabilities

 

 

41,690

 

 

 

24,321

 

Operating lease liabilities, net of current portion

 

 

20,555

 

 

 

21,056

 

Contingent consideration liability

 

 

45,663

 

 

 

50,258

 

Other liabilities

 

 

 

 

 

15,000

 

Total liabilities

 

 

107,908

 

 

 

110,635

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Undesignated preferred stock, $0.001 par value, 10,000,000 shares authorized as of
   March 31, 2022 and December 31, 2021;
no shares issued and outstanding at
   March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized at
   March 31, 2022 and December 31, 2021;
108,433,350 and 108,210,318 shares
   issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

109

 

 

 

109

 

Additional paid-in capital

 

 

1,681,225

 

 

 

1,666,887

 

Accumulated other comprehensive loss

 

 

(9,218

)

 

 

(1,088

)

Accumulated deficit

 

 

(830,146

)

 

 

(768,100

)

Total stockholders’ equity

 

 

841,970

 

 

 

897,808

 

Total liabilities and stockholders’ equity

 

$

949,878

 

 

$

1,008,443

 

 

See accompanying notes.

1


 

Relay Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

License and other revenue

 

$

419

 

 

$

952

 

Total revenue

 

 

419

 

 

 

952

 

Operating expenses:

 

 

 

 

 

 

Research and development expenses

 

$

51,667

 

 

$

30,622

 

Change in fair value of contingent consideration liability

 

 

(4,595

)

 

 

 

General and administrative expenses

 

 

16,068

 

 

 

12,735

 

Total operating expenses

 

 

63,140

 

 

 

43,357

 

Loss from operations

 

 

(62,721

)

 

 

(42,405

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

696

 

 

 

226

 

Other income (expense)

 

 

(21

)

 

 

(5

)

Total other income (expense), net

 

 

675

 

 

 

221

 

Net loss

 

$

(62,046

)

 

$

(42,184

)

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(0.47

)

Weighted average shares of common stock, basic and diluted

 

 

108,293,251

 

 

 

90,197,579

 

Other comprehensive (loss) income:

 

 

 

 

 

 

Unrealized holding loss

 

 

(8,130

)

 

 

(52

)

Total other comprehensive (loss) income

 

 

(8,130

)

 

 

(52

)

Total comprehensive loss

 

$

(70,176

)

 

$

(42,236

)

 

See accompanying notes.

2


 

Relay Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Par value

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

 

 

Balances at December 31, 2021

 

 

108,210,318

 

 

$

109

 

 

$

1,666,887

 

 

$

(1,088

)

 

$

(768,100

)

 

$

897,808

 

Issuance of common stock upon exercise of stock options

 

 

195,799

 

 

 

 

 

 

883

 

 

 

 

 

 

 

 

 

883

 

Vesting of restricted common stock

 

 

27,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

13,455

 

 

 

 

 

 

 

 

 

13,455

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(8,130

)

 

 

 

 

 

(8,130

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62,046

)

 

 

(62,046

)

Balances at March 31, 2022

 

 

108,433,350

 

 

$

109

 

 

$

1,681,225

 

 

$

(9,218

)

 

$

(830,146

)

 

$

841,970

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Par value

 

 

Capital

 

 

Income

 

 

Deficit

 

 

 

 

Balances at December 31, 2020

 

 

89,906,835

 

 

$

90

 

 

$

1,167,367

 

 

$

64

 

 

$

(404,228

)

 

$

763,293

 

Issuance of common stock upon exercise of stock options

 

 

437,230

 

 

 

 

 

 

2,055

 

 

 

 

 

 

 

 

 

2,055

 

Vesting of restricted common stock

 

 

84,489

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

9,671

 

 

 

 

 

 

 

 

 

9,671

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,184

)

 

 

(42,184

)

Balances at March 31, 2021

 

 

90,428,554

 

 

$

90

 

 

$

1,179,096

 

 

$

12

 

 

$

(446,412

)

 

$

732,786

 

 

See accompanying notes.

3


 

Relay Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

 

(62,046

)

 

$

(42,184

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

13,455

 

 

 

9,671

 

Depreciation expense

 

 

975

 

 

 

919

 

Net amortization of premiums and discounts on investments

 

 

681

 

 

 

153

 

Change in fair value of contingent consideration liability

 

 

(4,595

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

134

 

 

 

75,000

 

Contract asset

 

 

(140

)

 

 

(952

)

Prepaid expenses and other current assets

 

 

566

 

 

 

1,632

 

Operating lease assets and liabilities, net

 

 

48

 

 

 

130

 

Other assets

 

 

 

 

 

22

 

Accounts payable

 

 

(1,223

)

 

 

(811

)

Accrued expenses and other liabilities

 

 

3,054

 

 

 

3,060

 

Deferred revenue

 

 

(82

)

 

 

 

Net cash (used in) provided by operating activities

 

 

(49,173

)

 

 

46,640

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,794

)

 

 

(476

)

Purchases of investments

 

 

(127,690

)

 

 

(619,320

)

Proceeds from maturities of investments

 

 

18,100

 

 

 

386,175

 

Net cash used in investing activities

 

 

(112,384

)

 

 

(233,621

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

883

 

 

 

2,055

 

Net cash provided by financing activities

 

 

883

 

 

 

2,055

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(160,674

)

 

 

(184,926

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

282,697

 

 

 

448,524

 

Cash, cash equivalents and restricted cash at end of period

 

 

122,023

 

 

$

263,598

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment additions included in accounts payable and accrued expenses

 

 

1,552

 

 

$

100

 

Reclassification of restricted stock liability to additional paid-in capital

 

 

 

 

$

3

 

 

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

 

 

 

March 31,
2022

 

 

March 31,
 2021

 

Cash and cash equivalents

 

$

119,445

 

 

$

262,720

 

Restricted cash

 

 

2,578

 

 

 

878

 

Total cash, cash equivalents and restricted cash as shown on condensed consolidated
   statements of cash flows

 

$

122,023

 

 

$

263,598

 

 

See accompanying notes.

4


 

Relay Therapeutics, Inc.

Notes to Condensed 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 by combining leading-edge computational and experimental technologies with the goal of bringing life-changing therapies to patients. As the Company believes it is among the first of a new breed of biotech created at the intersection of disparate technologies, the Company aims to push the boundaries of what’s possible in drug discovery. The Company’s Dynamo™ platform integrates an array of leading-edge computational and experimental approaches designed to drug protein targets that have previously been intractable. The Company’s initial focus is on enhancing small molecule therapeutic discovery in targeted oncology and genetic disease indications. The Company’s lead product candidates, RLY-4008, RLY-2608 and RLY-1971, are in clinical development. The Company also has over five discovery stage programs across both precision oncology and genetic disease indications.

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 preclinical 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-4008, RLY-2608 and RLY-1971, by developing its computation and experimental approaches, 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 $830.1 million as of March 31, 2022. The Company expects that its existing cash, cash equivalents and investments as of March 31, 2022 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 license or 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.

2. Significant Accounting Policies

Basis of presentation

The accompanying condensed 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 condensed consolidated financial statements include the accounts of Relay Therapeutics, Inc. and its wholly-owned subsidiaries, Relay Therapeutics Securities Corporation and Relay ML Discovery, LLC.

 

All intercompany balances and transactions have been eliminated.

 

Certain prior period amounts, specifically including certain current liabilities, have been reclassified to conform to current period presentation. Such reclassifications have no impact on the Company’s condensed consolidated statement of operations and comprehensive loss, as previously reported.

5


 

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The unaudited condensed 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 condensed consolidated financial position as of March 31, 2022, the condensed consolidated results of its operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. The condensed consolidated financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The condensed consolidated results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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 condensed consolidated financial statements include, but are not limited to, the fair value of contingent milestone payments in connection with the acquisition of ZebiAI Therapeutics, Inc. (“ZebiAI”), the determination of the transaction price and standalone selling price of performance obligations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the accrual of research and development and manufacturing expenses, the valuation of equity instruments and the incremental borrowing rate for determining the operating lease assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

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 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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Certain amendments thereto were also issued by the FASB. ASU 2016-13 and the related amendments thereto require that credit losses be reported as an allowance using an expected losses model, representing the entity’s current estimate of credit losses expected to be incurred. The Company adopted ASU 2016-13 and the related amendments thereto on January 1, 2022. The adoption of ASU 2016-13 and the related amendments thereto did not have a material impact on the Company’s condensed consolidated financial statements or disclosures as of and for the three months ended March 31, 2022.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 does not believe that the adoption of any recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

6


 

3. Fair Value Measurements

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

 

 

 

Fair Value Measurements as of
March 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

93,469

 

 

$

 

 

$

 

 

$

93,469

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

 

 

 

 

519,475

 

 

 

 

 

 

519,475

 

U.S. agency securities

 

 

 

 

 

259,258

 

 

 

 

 

 

259,258

 

Total investments

 

 

 

 

 

778,733

 

 

 

 

 

 

778,733

 

Total assets

 

$

93,469

 

 

$

778,733

 

 

$

 

 

$

872,202

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

   Contingent Milestone Payments

 

$

 

 

$

 

 

$

(45,663

)

 

$

(45,663

)

Total liabilities

 

$

 

 

$

 

 

$

(45,663

)

 

$

(45,663

)

 

 

 

Fair Value Measurements as of
December 31, 2021:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

251,891

 

 

$

 

 

$

 

 

$

251,891

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury bills

 

 

 

 

 

469,386

 

 

 

 

 

 

469,386

 

U.S. agency securities

 

 

 

 

 

208,568

 

 

 

 

 

 

208,568

 

Total investments

 

 

 

 

 

677,954

 

 

 

 

 

 

677,954

 

Total assets

 

$

251,891

 

 

$

677,954

 

 

$

 

 

$

929,845

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent Milestone Payments

 

$

 

 

$

 

 

$

45,258

 

 

$

45,258

 

Total liabilities

 

$

 

 

$

 

 

$

45,258

 

 

$

45,258

 

 

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.

Fair Value of Contingent Consideration Liability

In April 2021, the Company acquired ZebiAI.

The Company’s Level 3 contingent consideration liability is related to $85.0 million of platform and program-related milestones (“Contingent Milestone Payments”) potentially payable to ZebiAI’s former equity holders. The contingent consideration liability for the Contingent Milestone Payments is measured at fair value at each reporting date pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). The Company determines the fair value of the Contingent Milestone Payments based on the probability of achieving the milestones, the related timing, and, to a lesser extent, an appropriate discount rate. Significant judgment is used in determining these assumptions. Due to the uncertainties associated with the development of platforms and drug candidates in the pharmaceutical industry and the effects of changes in assumptions including probability of success and related timing, the Company expects its estimates regarding the fair value of Contingent Milestone Payments to continue to change in the future, resulting in adjustments to the fair value of the Company’s Contingent Milestone Payments, and the effect of any such adjustments could be material.

The Company also has a contingent consideration liability related to the fair value of $100.0 million in earnout payments (“Contingent Earnout Payments”). Because the Contingent Earnout Payments were not accounted for as derivatives under FASB ASC Topic 815, Derivatives and Hedging, they were only measured at fair value as of the acquisition date and are not re-assessed at fair value at each reporting period. The Contingent Earnout Payments will be adjusted when the contingency is resolved and the consideration is paid or becomes payable.

 

7


 

The following table reconciles the change in fair value of the contingent consideration liability (in thousands):

 

Three Months Ended March 31, 2022

 

Balance at December 31, 2021

$

50,258

 

Change in fair value of Contingent Milestone Payments

 

(4,595

)

Balance at March 31, 2022

$

45,663

 

The “Change in fair value of Contingent Milestone Payments” in the table above was attributable to changes in the assumptions noted above through March 31, 2022, primarily changes in timing and interest rates.

The Contingent Milestone Payments are payable in shares of common stock based on a fixed amount assigned to each milestone and the weighted-average share price of the Company’s stock for the 5-day period prior to the milestone achievement. Accordingly, the number of shares to be issued upon a milestone achievement vary dependent on the Company’s stock price. The settlement amounts of Contingent Milestone Payments are predominantly fixed. If the milestones were achieved in full on March 31, 2022, the number of shares to be issued would be 2,806,207 based on a weighted average per share price of $30.29 for the 5-day period prior to March 31, 2022.

4. Investments

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

 

 

March 31, 2022

 

 

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

   U.S. treasury bills

 

$

320,925

 

 

$

 

 

$

(2,122

)

 

$

318,803

 

   U.S. agency securities

 

 

158,162