RELAY THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed 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 by combining leading-edge computational and experimental technologies with the goal of bringing life-changing therapies to patients. We are among the first of a new breed of biotech created at the intersection of disparate disciplines. Our Dynamo™ platform integrates an array of leading-edge computational and experimental approaches designed to drug protein targets that have previously been intractable, or inadequately addressed. Our initial focus is on enhancing small molecule therapeutic discovery in targeted oncology and genetic disease indications.
We are advancing a pipeline of medicines to address targets in precision oncology, including our lead product candidates, RLY-4008, RLY-2608 and RLY-1971.
• RLY-4008. In the third quarter of 2020, we initiated a first-in-human
clinical trial for RLY-4008, our inhibitor of fibroblast growth factor
receptor 2, or FGFR2, focusing on patients with advanced solid tumors having
oncogenic FGFR2 alterations. In October 2021 , we announced interim clinical
data from this trial. We believe the interim clinical data as of the data
cut-off date of September 9, 2021 , or the Interim Data Cut-off Date, suggest
robust inhibition of FGFR2 in the first 49 subjects that was not shown to be
limited by off-target toxicities, including hyperphosphatemia and diarrhea.
The initial toxicity data suggest that certain dose levels of RLY-4008
administered can achieve >85% continuous inhibition of FGFR2. At those
levels, acute toxicities that would limit dose intensity have generally not
been observed as of the Interim Data Cut-off Date. Approximately 80% of all
patients treated achieved reductions in tumor size as of the Interim Data
Cut-off Date, which was observed across dose levels, tumor types and FGFR2
alterations and line of treatment.
• RLY-2608. In 2021, we initiated Investigational New Drug, or IND, enabling
studies for RLY-2608, our inhibitor of cancer-associated mutant variants
H1047X, E542X and E545X of phosphoinostide 3-kinase alpha, or PI3K?.
RLY-2608 is the lead program of multiple preclinical efforts to discover and
develop mutant selective inhibitors of PI3K?. In October 2021 , we also
announced preclinical data for RLY-2608, which showed that in preclinical
models, RLY-2608 preferentially binds mutant PI3K? at a novel allosteric
site discovered by our Dynamo platform. In biochemical and cellular assays,
RLY-2608 inhibited the three major classes of PI3K? oncogenic mutations
(H1047X, E542X and E545X) while sparing wild-type PI3K?.
• RLY-1971. We initiated a Phase 1 clinical trial for 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. In
December 2020 , we entered into a global collaboration and license agreement,
or the Genentech Agreement, with Genentech, Inc. , a member of the Roche
Group, or Genentech , for the development and commercialization of RLY-1971.
In July 2021 , Genentech initiated the cohort of RLY-1971 in combination with
GDC-6036, its KRASG12C inhibitor, in a phase 1b trial.
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 indications. In addition to the three product candidates described above, we have five discovery stage programs across both precision oncology and genetic disease. 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
In
In
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royalties on annual global net sales (on a country-by-country basis),
anticipated to be in the low-to-mid-teens, subject to reductions in certain
circumstances. Additionally, we are eligible to receive additional royalties in
the event of regulatory approval of RLY-1971 and
On
In
The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and continues to affect our employees, patients, communities and business operations.
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 first-in-human clinical trials for RLY-1971 and RLY-4008, and we currently do not anticipate any interruptions in 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
We anticipate that our expenses will increase substantially if and as we:
• conduct our current and future clinical trials of RLY-4008, future clinical
trials of RLY-2608 and additional preclinical research and development of
our PI3K? mutant selective inhibitor programs and other early-stage
programs;
• initiate and continue research and preclinical and clinical development of
our other product candidates;
• seek to identify additional product candidates;
• pursue marketing approvals for any of our product candidates that
successfully complete clinical trials, if any;
• establish a sales, marketing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
• require the manufacture of larger quantities of our product candidates for
clinical development and potentially commercialization;
• obtain, maintain, expand and protect our intellectual property portfolio;
• acquire or in-license other drugs and technologies;
• hire and retain additional clinical, regulatory, quality and scientific
personnel;
• build out new facilities or expand existing facilities to support our
ongoing development activity; and
• add operational, financial and management information systems and personnel,
including personnel to support our drug development, any future
commercialization efforts and our operations as a public company.
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In addition, if we obtain marketing approval for any of our lead product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed, on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce or terminate our operations.
We believe our cash, cash equivalents and investments of
Components of our Results of Operations
Revenue
Our revenue consists primarily of amounts related to the Genentech Agreement. We recognize our revenue as the performance obligations are satisfied under the agreement.
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:
• salaries, benefits and other employee related costs, including stock-based
compensation expense, for personnel engaged in research and development
functions;
• costs of outside consultants, including their fees, stock-based compensation
and related travel expenses;
• expenses incurred under agreements with contract research organizations, or
CROs, contract manufacturing organizations, or CMOs, and other vendors that
conduct our clinical trials and preclinical activities;
• costs of acquiring, developing and manufacturing clinical trial materials
and lab supplies;
• acquisition of in-process research and development assets that have no
alternative future use;
• costs related to compliance with regulatory requirements; and
• facility costs, depreciation and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance and
other supplies.
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 other 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 expenses or accrued research and development expenses.
We began tracking external development costs by program on
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Three Months Nine Months
Ended Ended
September 30 , September 30,
2021 2021
(in thousands)
External costs for programs in clinical trials
studies 17,962 47,792 External costs for platform research and other research and development activities 4,498 11,651 Employee related expenses 18,959 50,778 Total research and development expenses$ 44,974 $ 120,743
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-2608 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.
We cannot determine with certainty the duration and costs of future clinical trials and future development costs, if, when or to what extent we will generate revenue from the commercialization and sale of any of 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:
• the scope, rate of progress, expense and results of our preclinical
development activities, any future clinical trials of RLY-4008, our PI3K?
mutant selective inhibitor programs, including RLY-2608, or other product
candidates, and other research and development activities that we may
conduct;
• uncertainties in clinical trial design and patient enrollment or drop out or
discontinuation rates;
• establishing an appropriate safety and efficacy profile with IND-enabling
studies;
• the initiation and completion of future clinical trial results;
• the timing, receipt and terms of any approvals from applicable regulatory
authorities including the U.S. Food and Drug Administration , or FDA, and
non-U.S. regulators;
• significant and changing government regulation and regulatory guidance;
• potential additional studies requested by regulatory agencies;
• establishing clinical and commercial manufacturing capabilities or making
arrangements with third-party manufacturers in order to ensure that we or
our third-party manufacturers are able to make product successfully;
• the impact of any business interruptions to our operations, including the
timing and enrollment of patients in our planned clinical trials, or to
those of our manufacturers, suppliers or other vendors resulting from the
COVID-19 pandemic or a similar public health crisis;
• the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights; and
• maintaining a continued acceptable safety profile of our product candidates
following approval, if any, of our product candidates.
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-4008, the development of our PI3K? mutant selective inhibitor programs, including RLY-2608, 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.
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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, 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
Other Income, Net
Other income, net primarily consists of interest income related to interest earned on our cash, cash equivalents and investments.
Income Taxes
Since our inception in 2015, we have not recorded any
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
September 30, Change
2021 2020
(in thousands)
Revenue $ 666 $ - $ 666
Operating expenses:
Research and development $ 44,974 $ 24,376 $ 20,598
Change in fair value of contingent
consideration liability 2,000 - 2,000
General and administrative 14,682 12,231 2,451
Total operating expenses 61,656 36,607 25,049
Loss from operations (60,990 ) (36,607 ) (24,383 )
Other income, net 157 529 (372 )
Net loss $ (60,833 ) $ (36,078 ) $ (24,755 )
Revenue
We recognized revenue of approximately
Research and Development Expenses
Three Months Ended
September 30, Change
2021 2020
(in thousands)
Employee related expenses $ 18,959 $ 10,887 $ 8,072
Outside and consulting services 16,510 7,642 8,868
Clinical trial expenses 3,555 2,101 1,454
Depreciation 807 750 57
Laboratory supplies and other costs 2,915 1,606 1,309
Facilities and other allocated expenses 2,228 1,390 838
Total research and development expenses
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Research and development expenses were
Change in Fair Value of Contingent Consideration Liability
The fair value of our contingent consideration liability for milestones under
the Merger Agreement with ZebiAI increased
General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net, was
Comparison of the nine months ended
The following table summarizes our results of operations for the nine months endedSeptember 30, 2021 : Nine Months Ended September 30, Change 2021 2020 (in thousands) Revenue$ 2,462 $ -$ 2,462 Operating expenses: Research and development$ 120,743 $ 67,739 $ 53,004 In-process research and development 123,000 - 123,000 Loss on initial consolidation of variable interest entity 11,855 - 11,855 Change in fair value of contingent consideration liability 2,000 - 2,000 General and administrative 41,839 23,045 18,794 Total operating expenses 299,437 90,784 208,653 Loss from operations (296,975 ) (90,784 ) (206,191 ) Other income, net 559 3,096 (2,537 ) Net loss$ (296,416 ) $ (87,688 ) $ (208,728 ) 21
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Revenue
We recognized revenue of approximately
Research and Development Expenses
Nine Months Ended
September 30, Change
2021 2020
(in thousands)
Employee related expenses $ 50,778 $ 24,957 $ 25,821
Outside and consulting services 43,811 26,372 17,439
Clinical trial expenses 10,522 4,853 5,669
Depreciation 2,292 2,181 111
Laboratory supplies and other costs 7,578 5,138 2,440
Facilities and other allocated expenses 5,762 4,238 1,524
Total research and development expenses
Research and development expenses were
In-process research and development expenses of
Loss on Initial Consolidation of Variable Interest Entity
Loss on initial consolidation of variable interest entity of
Change in Fair Value of Contingent Consideration Liability
The fair value of our contingent consideration liability for milestones under
the Merger Agreement with ZebiAI increased
General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net, was
Liquidity and Capital Resources
Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years, if ever. To
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date, we have principally financed our operations through private placements of
preferred stock, convertible debt and proceeds from public offerings of our
common stock. In
In
In
In
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine Months Ended
September 30,
2021 2020
(in thousands)
Cash used in operating activities $ (34,699 ) $ (67,217 )
Cash (used in) provided by investing activities (186,766 ) 158,092
Cash provided by financing activities 4,078 426,453
Net (decrease) increase in cash, cash equivalents and
restricted
cash $ (217,387 ) $ 517,328
Operating Activities.
During the nine months ended
For the nine months ended
Investing Activities.
During the nine months ended
During the nine months ended
Financing Activities.
During the nine months ended
During the nine months ended
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Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to the potential clinical development activities of RLY-4008 and RLY-2608 and the ongoing pre-clinical development activities of our PI3K? mutant selective inhibitor programs. In addition, we are now incurring additional costs associated with operating as a public company. We expect that our expenses will increase substantially as discussed in more detail in "-Overview" above.
We believe our cash, cash equivalents and investments of
Because of the numerous risks and uncertainties associated with the development of RLY-4008, our PI3K? mutant selective inhibitor programs, including RLY-2608, and other product candidates and programs and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
• the impact of any business interruptions to our operations, including the
timing and enrollment of patients in our planned clinical trials, or to
those of our manufacturers, suppliers or other vendors resulting from the
COVID-19 pandemic or similar public health crisis;
• the scope, progress, results and costs of our current and future clinical
trials of RLY-4008 and future clinical trials of RLY-2608 and additional
preclinical research of our PI3K? mutant selective inhibitor programs;
• the scope, progress, results and costs of drug discovery, preclinical
research and clinical trials for our other product candidates;
• the number of future product candidates that we pursue and their development
requirements;
• the costs, timing and outcome of regulatory review of our product candidates;
• our ability to establish and maintain collaborations on favorable terms, if
at all;
• the success of any existing or future collaborations that we may enter into
with third parties;
• the extent to which we acquire or invest in businesses, products and
technologies, including entering into licensing or collaboration
arrangements for product candidates, such as our collaboration with
Genentech ;
• the achievement of milestones or occurrence of other developments that
trigger payments under any existing or future collaboration agreements, if
any;
• the extent to which we are obligated to reimburse, or entitled to
reimbursement of, clinical trial costs under any existing or future
collaboration agreements, if any;
• the costs and timing of future commercialization activities, including drug
sales, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval, to the extent that such
sales, marketing, manufacturing and distribution are not the responsibility
of any collaborator that we may have at such time;
• the amount of revenue, if any, received from commercial sales of our product
candidates, should any of our product candidates receive marketing approval;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• our headcount growth and associated costs as we expand our business
operations and our research and development activities; and
• the costs of operating as a public company.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital
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expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
There were no material changes to our contractual obligations and commitments
during the nine months ended
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
The full extent to which the COVID-19 pandemic will directly or indirectly impact our 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. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from our estimates.
For a discussion of our critical accounting estimates, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended
Acquisition Accounting
We are required to make significant judgments and estimates to determine whether an acquisition constitutes an acquisition of a business or assets. For asset acquisitions, this includes whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. We are also required to make several significant judgments and estimates in order to determine the total consideration transferred for the asset acquisition and then allocate it to the assets that we have acquired and the liabilities that we have assumed on our consolidated balance sheet. The most significant judgments and estimates typically relate to the fair value of the in-process research and development, or IPR&D, and the fair value of certain contingent payments related to the acquisition. We are also required to reassess the fair value of the Contingent Milestone Payments on a quarterly basis, which requires similar judgments and estimates. Changes in the fair value of certain contingent payments can result from changes to one or multiple inputs, including adjustments to the probability of achievement and timing of the contingent payments, and changes to the applicable discount rates. Significant judgment is used in determining these assumptions during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liability.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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