Relay Therapeutics(RLAY) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Net loss decreased to $138.8 million in H1 2022 due to the absence of a 2021 in-process R&D expense Condensed Consolidated Balance Sheets Total assets decreased to $889.4 million as of June 30, 2022, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $107,736 | $280,119 | | Investments | $730,254 | $677,954 | | Total Assets | $889,421 | $1,008,443 | | Total current liabilities | $43,902 | $24,321 | | Total Liabilities | $109,784 | $110,635 | | Total Stockholders' Equity | $779,637 | $897,808 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss significantly decreased in Q2 2022 to $76.8 million, primarily due to the non-recurrence of 2021 one-time expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $365 | $844 | $784 | $1,796 | | Research and development expenses | $60,511 | $45,147 | $112,178 | $75,769 | | In-process R&D expenses | $0 | $123,000 | $0 | $123,000 | | General and administrative expenses | $17,465 | $14,422 | $33,533 | $27,156 | | Net loss | $(76,788) | $(193,399) | $(138,834) | $(235,582) | | Net loss per share, basic and diluted | $(0.71) | $(2.10) | $(1.28) | $(2.58) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $106.3 million in H1 2022, a significant shift from cash provided in 2021 Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(106,266) | $18,500 | | Net cash used in investing activities | $(68,996) | $(207,553) | | Net cash provided by financing activities | $2,879 | $3,176 | | Net decrease in cash, cash equivalents and restricted cash | $(172,383) | $(185,877) | - The significant decrease in cash from operating activities in H1 2022 compared to H1 2021 is largely due to a $74.8 million positive change in accounts receivable in 2021 that did not recur, related to payments from the Genentech collaboration[31] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the clinical pipeline, increased R&D expenses, and cash reserves sufficient to fund operations into at least 2025 - The company is advancing its pipeline, with RLY-4008 moving towards a potential accelerated approval path in CCA, RLY-2608 in a first-in-human trial, and RLY-1971 being developed in collaboration with Genentech[77] R&D and G&A Expense Comparison (in millions) | Expense Category | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Research & Development | $112.2 | $75.8 | +$36.4 | | General & Administrative | $33.5 | $27.2 | +$6.3 | - The company believes its cash, cash equivalents, and investments of $838.0 million as of June 30, 2022, will be sufficient to fund operating expenses and capital expenditure requirements into at least 2025[90][134] - The decrease in net loss for H1 2022 compared to H1 2021 was primarily due to the non-recurrence of a $123.0 million in-process R&D expense and an $11.9 million loss on consolidation of a VIE, both related to the acquisition of ZebiAI in Q2 2021[115][118][119] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces minimal market risk from interest rate changes on investments and negligible foreign currency exchange risk due to U.S.-centric operations - The primary market risk is interest rate sensitivity on the company's investment portfolio; a hypothetical 100 basis point adverse movement is not expected to materially impact results[144] - Foreign currency exchange risk is not considered material as operations are mainly in the U.S. and expenses are denominated in U.S. dollars[146] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[149] - No material changes to the internal control over financial reporting occurred during the fiscal quarter ended June 30, 2022[150] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of June 30, 2022, the company was not party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently involved in any litigation or legal proceedings expected to have a material adverse effect on its business[153] Item 1A. Risk Factors The company outlines extensive risks including clinical development, third-party reliance, funding needs, competition, and intellectual property protection Risks Related to Product Candidates Risks include the company's lack of completed clinical trials, unpredictability of early-stage data, and intense competition in product development - The company has never successfully completed any clinical trials and may be unable to do so for its product candidates (RLY-1971, RLY-4008, RLY-2608)[155] - Positive data from preclinical or early clinical studies are not necessarily predictive of the results of later clinical trials[167] - The company faces substantial competition, which may result in others developing or commercializing products more successfully[194] Risks Related to Reliance on Third Parties The company heavily relies on third parties for its Dynamo™ platform, clinical trials (CROs), and manufacturing (CMOs), posing significant operational risks - The company's collaboration with D. E. Shaw Research, utilizing the proprietary Anton 2 supercomputer, is critical to its Dynamo platform, and termination could materially harm the business[204][207] - The company relies on third parties (CROs) to conduct all its clinical trials and is dependent on them for execution and regulatory compliance[212] - The company contracts with third-party manufacturers (CMOs) for all its product candidates and does not own any manufacturing facilities, creating risks in supply, quality, and cost[222] Risks Related to Financial Position and Capital The company has a limited operating history, significant accumulated losses, and will require substantial additional funding to continue development programs - The company has a limited operating history, has incurred significant operating losses since inception, and anticipates continued losses, with an accumulated deficit of $906.9 million as of June 30, 2022[242] - The company will need to raise substantial additional funding, and failure to do so may force delays or elimination of product development programs[250] Risks Related to Intellectual Property Success depends on patent protection and trade secrets, facing uncertainties in biotech IP, complex collaboration terms, and potential infringement claims - The company's ability to protect its proprietary technology and obtain patent protection is crucial, but the patent position of biotech companies is highly uncertain and involves complex legal questions[265][271] - Much of the company's R&D is performed under the DESRES Agreement, which involves joint ownership of work product and complex IP rights that could lead to disputes[268][270] - The company may face legal proceedings from third parties alleging infringement of their IP rights, which could be uncertain, expensive, and have a material adverse effect on the business[286] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None[394] Item 5. Other Information The board of directors decided to hold an annual advisory vote on executive compensation based on stockholder preference - The company will hold an annual advisory 'say-on-pay' vote for executive compensation, based on stockholder preference[395] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - The exhibits filed include corporate governance documents and required certifications under the Sarbanes-Oxley Act[397]