Relay Therapeutics(RLAY) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2021 and 2020, including balance sheets, operations, cash flows, and key accounting notes Condensed Consolidated Balance Sheets Total assets decreased to $771.3 million as of March 31, 2021, primarily due to a reduction in cash offset by increased investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $262,720 | $447,646 | | Investments | $463,355 | $230,415 | | Total current assets | $742,434 | $770,100 | | Total assets | $771,346 | $799,829 | | Liabilities & Equity | | | | Total current liabilities | $16,083 | $13,632 | | Total liabilities | $38,560 | $36,536 | | Total stockholders' equity | $732,786 | $763,293 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company recognized its first collaboration revenue while operating expenses significantly increased, widening the net loss to $42.2 million for Q1 2021 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Collaboration revenue | $952 | $0 | | Research and development expenses | $30,622 | $21,700 | | General and administrative expenses | $12,735 | $4,758 | | Loss from operations | ($42,405) | ($26,458) | | Net loss | ($42,184) | ($24,886) | | Net loss per share, basic and diluted | ($0.47) | ($5.99) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $46.6 million in Q1 2021, driven by Genentech receivable collection, while investing activities used $233.6 million Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $46,640 | ($22,334) | | Net cash provided by (used in) investing activities | ($233,621) | $50,371 | | Net cash provided by financing activities | $2,055 | $351 | | Net (decrease) increase in cash | ($184,926) | $28,388 | Notes to Condensed Consolidated Financial Statements These notes detail the Genentech collaboration, the subsequent acquisition of ZebiAI Therapeutics, and commitments under the D.E. Shaw Research agreement - In December 2020, the company entered into a collaboration and license agreement with Genentech for RLY-1971, receiving a $75 million upfront payment in January 2021. The company is eligible for up to $695 million in additional milestones plus tiered royalties[49][50] - As a subsequent event, on April 15, 2021, the company acquired ZebiAI Therapeutics, Inc. for approximately $85 million in upfront consideration ($20 million cash, $65 million stock) plus potential future milestone payments[70] - The collaboration agreement with D. E. Shaw Research was amended to increase the annual fee from $7.9 million to $9.875 million, commencing August 16, 2021[66] Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Research and development | $4,151 | $897 | | General and administrative | $5,520 | $558 | | Total | $9,671 | $1,455 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the clinical pipeline, increased operating expenses, $1.0 million in collaboration revenue, and the company's liquidity position expected to fund operations into 2024 - The company's cash, cash equivalents, and investments of $726.1 million as of March 31, 2021, are expected to fund operating expenses and capital expenditure requirements into 2024[85][111] Comparison of Results of Operations (in thousands) | Metric | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Revenue | $952 | $0 | | Research and development | $30,622 | $21,700 | | General and administrative | $12,735 | $4,758 | | Loss from operations | ($42,405) | ($26,458) | - R&D expenses increased by $8.9 million year-over-year, primarily due to a $5.5 million increase in employee-related costs (including $3.3 million in stock-based compensation) and a $1.7 million increase in clinical trial expenses for RLY-1971 and RLY-4008[100] - G&A expenses increased by $8.0 million year-over-year, mainly due to a $6.2 million increase in personnel costs (including $5.0 million in stock-based compensation) and a $1.7 million increase in other expenses like insurance[101] - In April 2021, the company acquired ZebiAI Therapeutics for upfront consideration of approximately $85.0 million ($20.0 million in cash and $65.0 million in common stock), with potential for additional milestone payments[86] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its investment portfolio, with minimal foreign currency exchange risk due to U.S.-denominated operations - The company's main market risk is interest rate sensitivity on its cash and investment portfolio. A hypothetical 100 basis point adverse movement is not expected to have a material impact[123] - Foreign currency exchange risk is not significant as operations are located in the United States and expenses are generally denominated in U.S. dollars[125] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[127] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[128] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business[132] Risk Factors The company faces significant risks including limited operating history, reliance on third parties for clinical development, need for substantial funding, and challenges related to competition and regulatory hurdles - The company has a limited operating history, has never successfully completed any clinical trials, and has incurred significant operating losses since inception, with an accumulated deficit of $446.4 million as of March 31, 2021[134][207] - The business is highly dependent on its collaboration with D. E. Shaw Research and its proprietary supercomputer, Anton 2, for the Dynamo™ platform. Termination of this agreement could materially harm the business[174][175] - The company relies on third parties to conduct clinical trials and manufacture product candidates, increasing risks related to quality, compliance, and supply chain disruptions[181][188] - Substantial additional funding will be required to continue operations. Failure to raise capital when needed could force the company to delay, reduce, or eliminate development programs[212] - The COVID-19 pandemic poses a risk of material adverse effects on the business, including potential disruptions to clinical trials, supply chains, and employee productivity[221] - The company is an "emerging growth company" and a "smaller reporting company," which allows for reduced disclosure requirements that could make its common stock less attractive to investors[327] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of its equity securities during the period covered by this Form 10-Q - There were no unregistered sales of equity securities during the quarter[352] Other Information This section discloses significant agreements, including an amended collaboration with D. E. Shaw Research and a retention agreement with a key executive - On May 12, 2021, the company amended its agreement with D. E. Shaw Research (DESRES), increasing the annual fee from $7.9 million to approximately $9.9 million, effective August 16, 2021[353] - On May 10, 2021, the company entered into a retention agreement with Donald Bergstrom, M.D., Ph.D., providing for two potential cash retention payments of $600,000 each on May 31, 2023, and May 31, 2024, contingent on his continued employment[355][356] Exhibits This section lists all exhibits filed with the quarterly report, including the ZebiAI merger agreement, D. E. Shaw Research amendment, and executive retention agreement - Key exhibits filed include the merger agreement for ZebiAI, amendments to the D. E. Shaw Research collaboration, and an executive retention agreement[358] Signatures - The report was duly signed on May 13, 2021, by Sanjiv K. Patel, M.D., President and Chief Executive Officer, and Thomas Catinazzo, Senior Vice President, Finance[364]