Relay Therapeutics(RLAY) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited H1 2023 financial statements show decreased assets, widened net loss, and increased operating cash outflow, driven by higher R&D expenses Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $962.0 million from $1.1 billion, primarily due to reduced cash and investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $145,902 | $151,794 | | Investments | $725,671 | $847,123 | | Total Assets | $962,016 | $1,099,771 | | Liabilities & Equity | | | | Total Liabilities | $151,897 | $149,553 | | Total Stockholders' Equity | $810,119 | $950,218 | | Total Liabilities and Stockholders' Equity | $962,016 | $1,099,771 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net losses increased for Q2 and H1 2023, driven by substantially higher research and development expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $119 | $365 | $345 | $784 | | Research and development expenses | $88,201 | $60,511 | $171,028 | $112,178 | | General and administrative expenses | $20,120 | $17,465 | $39,699 | $33,533 | | Loss from operations | $(106,050) | $(77,811) | $(207,227) | $(140,532) | | Net loss | $(98,505) | $(76,788) | $(192,744) | $(138,834) | | Net loss per share, basic and diluted | $(0.81) | $(0.71) | $(1.59) | $(1.28) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased for H1 2023, while investing activities provided cash, mainly from investment maturities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(135,731) | $(106,266) | | Net cash provided by (used in) investing activities | $126,591 | $(68,996) | | Net cash provided by financing activities | $3,377 | $2,879 | | Net decrease in cash, cash equivalents, and restricted cash | $(5,763) | $(172,383) | Notes to Condensed Consolidated Financial Statements Notes detail the company's clinical-stage business, accumulated deficit, fair value measurements, and collaboration agreements - The company is a clinical-stage precision medicine company with lead product candidates RLY-4008, RLY-2608, GDC-1971, and RLY-5836 in clinical development[30] - As of June 30, 2023, the company had an accumulated deficit of $1.3 billion and expects existing cash to fund operations for at least one year from the issuance date of the financial statements[34] - The fair value of the contingent consideration liability related to the ZebiAI acquisition was $29.2 million as of June 30, 2023, a decrease from $32.4 million at year-end 2022[49] - Revenue recognized from the Genentech Agreement was $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the clinical-stage pipeline, increased operating expenses from R&D, and liquidity, projecting funds sufficient into H2 2025 Overview The company is a clinical-stage precision medicine company advancing key oncology and genetic disease programs, financed through equity and collaborations - The company is advancing a pipeline of medicines including RLY-4008, RLY-2608, GDC-1971, and RLY-5836, all in clinical development[76] - RLY-4008 is being developed for FGFR2-altered solid tumors, with a potential registrational path in CCA. Interim data showed an 88% ORR in treatment-naïve, FGFR2-fusion CCA patients at the pivotal dose[77] - RLY-2608, a pan-mutant PI3Kα inhibitor, is in a first-in-human trial. Initial data showed selective target engagement and a favorable safety profile with no Grade 3 hyperglycemia, diarrhea, or rash[77][78] - The company has financed operations through public offerings, including a September 2022 offering that raised $284.7 million net, and has received $110.0 million from its Genentech agreement as of June 30, 2023[80][81] Results of Operations Operating results for Q2 and H1 2023 show increased R&D and G&A expenses, leading to larger net losses, partially offset by higher other income Comparison of Results for the Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | License and other revenue | $345 | $784 | $(439) | | Research and development expenses | $171,028 | $112,178 | $58,850 | | General and administrative expenses | $39,699 | $33,533 | $6,166 | | Net loss | $(192,744) | $(138,834) | $(53,910) | - The $58.9 million increase in H1 2023 R&D expenses was driven by a $29.9 million rise in external costs for clinical trials (RLY-4008, RLY-2608, RLY-5836) and an $18.6 million increase in employee-related costs[118] - The $6.2 million increase in H1 2023 G&A expenses was primarily due to a $6.8 million rise in employee-related costs, mostly from increased stock compensation[120] Liquidity and Capital Resources As of June 30, 2023, the company held $871.6 million in cash and investments, projected to fund operations into H2 2025 - The company had cash, cash equivalents, and investments of $871.6 million as of June 30, 2023[122] - Management projects the current cash position will fund operating expenses and capital requirements into the second half of 2025[135] Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash used in operating activities | $(135,731) | $(106,266) | | Cash provided by (used in) investing activities | $126,591 | $(68,996) | | Cash provided by financing activities | $3,377 | $2,879 | Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on investments, with foreign currency risk deemed immaterial - The company is exposed to interest rate risk on its portfolio of cash equivalents and investments. A hypothetical 100 basis point adverse change is not expected to have a material impact[146] - Foreign currency exchange risk is not material as operations are located in the U.S. and expenses are generally denominated in U.S. dollars[148] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[150] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that materially affected or are likely to materially affect internal controls[151] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently a party to any litigation or legal proceedings that are probable to have a material adverse effect on its business[154] Risk Factors The company faces extensive risks including clinical trial uncertainty, third-party dependence, capital needs, competition, intellectual property, and regulatory challenges - The company has never successfully completed any clinical trials and may be unable to do so, which could lead to delays or failure in commercializing its product candidates[156] - The company relies on a collaboration with D. E. Shaw Research and its proprietary supercomputer, Anton 2, for its drug discovery platform; termination of this agreement could materially harm the business[204] - The company has incurred significant operating losses since inception, with an accumulated deficit of $1.3 billion as of June 30, 2023, and will need to raise substantial additional funding to continue operations[238][246] - The company faces substantial competition from major pharmaceutical and biotechnology companies with greater financial resources and expertise[195][197] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[388] Other Information On August 3, 2023, the company entered a retention agreement with Peter Rahmer for a cash award, contingent on continued employment - On August 3, 2023, the company entered into a retention agreement with Peter Rahmer, Chief Corporate Development Officer, for a cash award totaling up to $600,000, payable in two tranches in 2024, contingent on continued employment[389][390] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance, collaboration amendments, and SEC certifications - Key exhibits filed include Amendment No. AR4 to the DESRES Agreement, an Amended and Restated Non-Employee Director Compensation Policy, and a Retention Agreement with Peter Rahmer[393]