Relay Therapeutics Inc

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 medicine 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 complementary techniques and 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 or inadequately addressed. 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-2608 and RLY-4008 (lirafugratinib), are in clinical development. The Company announced three discovery stage programs in June 2024, includingtwo novel programs from its genetic disease portfolio to address clinically and commercially validated targets in vascular malformations and Fabry disease, respectively, and an NRAS-selective inhibitor. The Company also hasfive active discovery stage programs across both precision oncology and genetic diseases.

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 by integrating 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$1.7 billion as of September 30, 2024. The Company expects that its existing cash, cash equivalents, and investments as of September 30, 2024 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.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 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 September 30, 2024, the condensed consolidated results of its operations for the three and nine months ended September 30, 2024 and 2023, and condensed consolidated cash flows for the nine months ended September 30, 2024 and 2023. The condensed consolidated financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2024 and 2023 are unaudited. The condensed consolidated results for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, 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 ("ASC 606"), the accrual of research and development and manufacturing expenses, the valuation of equity instruments, and the incremental borrowing rate for determining operating lease assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to provide enhancements to segment disclosures, even for entities with only one reportable segment. In particular, the standard will require disclosures of significant segment expenses regularly provided to the chief operating decision maker and included within each reported measure of segment profit and loss. The standard will also require disclosure of all other segment items by reportable segment and a description of its composition. Finally, the standard will require disclosure of the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard is effective for annual periods beginning after December 15, 2023 and interim periods within annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the standard on the presentation of its condensed consolidated financial statements and footnotes.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to provide enhancements to annual income tax disclosures. In particular, the standard will require more detailed information in the income tax rate reconciliation, as well as the disclosure of income taxes paid disaggregated by jurisdiction, among other enhancements. The standard is effective for years beginning after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the impact of the standard on the presentation of its condensed consolidated financial statements and footnotes.

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:

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

In April 2021, the Company acquired ZebiAI.

Pursuant to the terms of the acquisition, the Company is liable for certain contingent consideration, including (a) up to $85.0 million in platform and program milestones ("Contingent Milestone Payments") and (b) up to $100.0 million in earnout payments ("Contingent Earnout Payments"), both payable to ZebiAI's former equity holders upon achievement.

The Company classified the Contingent Milestone Payments within Level 3 of the fair value hierarchy. Pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity ("ASC 480"), the Company has accounted for the Contingent Milestone Payments as a liability and remeasured the fair value at each reporting period based on the probability of achieving the contingent milestones and timing. Significant judgment has been used in determining the underlying assumptions. In connection therewith, the liability was recorded at $0 on the condensed consolidated balance sheet as of September 30, 2024.

The Company has not accounted for the Contingent Earnout Payments as derivatives under FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"). As such, they were only measured at fair value as of the acquisition date and have not been re-assessed at fair value as of each reporting period end. During the nine months ended September 30, 2024, the contingency was resolved without the consideration becoming payable. Therefore, the liability was recorded at $0 on the condensed consolidated balance sheet as of September 30, 2024.

The following table reconciles the change in the contingent consideration liability:

4. Investments

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

The following tables summarize the Company's available-for-sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by major security type and length of time in a continuous unrealized loss position:

As summarized in the tables immediately above, the Company held 46 and 70 debt securities that were in an unrealized loss position as of September 30, 2024 and December 31, 2023, respectively. The unrealized losses at September 30, 2024 and December 31, 2023 were attributable to changes in interest rates and do not represent credit losses. The Company does not intend to sell these securities and it is not more likely than not that it will be required to sell them before recovery of their amortized cost basis.

5. Common Stock

Each share of common stock entitles the stockholder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors. As of September 30, 2024, no dividends had been declared.

At-the-Market Offering

In August 2021, the Company entered into a sales agreement (the "2021 Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which the Company could offer and sell shares of its common stock having aggregate gross proceeds of up to $300.0 million from time to time in "at-the-market" offerings through Cowen, as the Company’s sales agent.

During the three months ended March 31, 2024, the Company sold 1,889,597 shares of common stock under the 2021 Sales Agreement at a weighted-average price of $9.73 per share. The Company received $17.9 million in proceeds therefrom, which were net of $0.5 million in commissions paid to Cowen.

During the three months ended June 30, 2024, there wereno sales of common stock under the 2021 Sales Agreement.

In August 2024, the 2021 Sales Agreement was terminated by mutual agreement between the Company and Cowen. Separately, the Company entered into a new sales agreement (the “2024 Sales Agreement”) with TD Securities (USA) LLC (“TD Securities”), pursuant to which the Company may offer and sell shares of its common stock having aggregate gross proceeds of up to $250.0 million from time to time in “at-the-market” offerings through TD Securities, as the Company’s sales agent.

During the three months ended September 30, 2024, there wereno sales of common stock under the 2021 Sales Agreement or 2024 Sales Agreement.

Private Placement

In January 2024, the Company entered into a securities purchase agreement with Nextech Crossover I SCP for the private placement of 2,500,000 shares of common stock at $12.00 per share (the "Private Placement"). The Company received $29.8 million in proceeds from the Private Placement, which were net of $0.2 million in offering expenses. The shares issued through the Private Placement were registered for resale pursuant to the Company’s Registration Statement on Form S-3, filed with the SEC on August 12, 2021, and prospectus supplement relating to the shares, filed with the SEC on January 10, 2024.

Follow-On Offering

In September 2024, the Company completed a public offering of 32,857,143 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 4,285,714 shares, at an offering price of $7.00 per share. The Company received proceeds of $218.2 million, which was net of $11.8 million in underwriting discounts and other offering expenses. The shares issued in connection with the offering were registered pursuant to a universal shelf registration statement on Form S-3ASR filed with the SEC on August 6, 2024 (File No. 333-281308), as well as a prospectus supplement related to the shares, filed with the SEC on September 11, 2024.

6. Stock Compensation

Stock compensation expense in the Company’s condensed consolidated statements of operations and comprehensive loss is as follows:

7. Net Loss per Share

The following table summarizes the computation of basic and diluted net loss per share of the Company:

For thethree and nine months ended September 30, 2024 and 2023, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same. In computing diluted net loss per share for the three and nine months ended September 30, 2024 and 2023, the Company excluded the following potentially dilutive securities, as the effect would be anti-dilutive and reduce the net loss per share calculated for each period.

The amounts in the table above for options and restricted stock units are presented based on amounts outstanding at each period end.

8. Collaboration and License Agreement with Genentech, Inc.

Summary of Terms

In December 2020, the Company and Genentech, Inc. ("Genentech") entered into the Collaboration and License Agreement (as amended from time to time, the "Genentech Agreement"), which granted Genentech a license to develop and commercialize migoprotafib (GDC-1971, formerly known as RLY-1971).

On July 11, 2024, the Company received notice that Genentech exercised its right to terminate the Genentech Agreement without cause. The termination will become effective 180 days after the date of receipt of the notice of termination (the "Termination Date"). As a result of the termination of the Genentech Agreement, the Company will not be entitled to receive any further milestones or other payments due after the Termination Date. The parties will also cease to have any development or commercialization obligations after the Termination Date and the licenses that the Company granted to Genentech pursuant to the Genentech Agreement will cease to be in effect as of the Termination Date.

As of September 30, 2024, consideration under the Genentech Agreement totaled $121.8 million, which included $10.0 million paid to the Company in connection with a milestone achieved during thenine months ended September 30, 2024.

Accounting Analysis

During the three and nine months ended September 30, 2024 and 2023, there were no material changes to the Genentech Agreement, besides the termination noted above, which will become effective in the future on the Termination Date. Accordingly, there were no changes to the Company's accounting treatment and model for recognizing revenue thereon through September 30, 2024.

During the three months ended September 30, 2024 and 2023, the Company recognized $0 and $25.1 million of revenue, respectively, from the Genentech Agreement.

During the nine months ended September 30, 2024 and 2023, the Company recognized $10.0 million and $25.5 million of revenue, respectively, from the Genentech Agreement.

9. Commitments and Contingencies

Intellectual Property License

In August 2016, the Company and D.E. Shaw Research, LLC ("D.E. Shaw Research") entered into the Collaboration and License Agreement, which was most recently amended in 2023 ("DESRES Agreement"). During the three and nine months ended September 30,

2024 and 2023, there were no material changes to the contractual terms of the DESRES Agreement. Accordingly, there were no changes to the Company’s accounting treatment thereon through September 30, 2024.

The Company assessed the milestones under the DESRES Agreement at September 30, 2024 and December 31, 2023, concludingno payments were due.

For each of the three months ended September 30, 2024 and 2023, the Company recorded research and development expenses of $2.3 million under the DESRES Agreement on its condensed consolidated statement of operations and comprehensive loss.

For the nine months ended September 30, 2024 and 2023, the Company recorded research and development expenses of $7.2 million and $7.1 million, respectively, under the DESRES Agreement on its condensed consolidated statement of operations and comprehensive loss.

As of September 30, 2024 and December 31, 2023, the Company had prepaid balances of $8.2 million and $5.4 million, respectively, under the DESRES Agreement on its condensed consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, the Company hadno accrued expense and accounts payable balances under the DESRES Agreement on its condensed consolidated balance sheets.

Other Arrangements

The Company has certain other research and license arrangements and other collaborations with third parties, which provide the Company with specified research and/or development services.

10. Subsequent Events

In preparing the condensed consolidated interim financial statements as of September 30, 2024 and for the three month period then ended, the Company evaluated subsequent events for recognition and measurement purposes. The Company concluded that no events or transactions have occurred that require disclosure in the accompanying condensed consolidated financial statements, except as otherwise described in the notes above.