S-1 1 d924757ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on June 24, 2020.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

RELAY THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   47-3923475

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

399 Binney Street, 2nd Floor

Cambridge, MA 02139

(617) 370-8837

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Sanjiv K. Patel, M.D.

President and Chief Executive Officer

Relay Therapeutics, Inc.

399 Binney Street, 2nd Floor

Cambridge, MA 02139

(617) 370-8837

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Mitchell S. Bloom, Esq.

William D. Collins, Esq.

Gabriela Morales-Rivera, Esq.

Goodwin Procter LLP

100 Northern Avenue

Boston, MA 02210

(617) 570-1000

 

Brian R. Adams, Esq.

General Counsel

Relay Therapeutics, Inc.

399 Binney Street, 2nd Floor

Cambridge, MA 02139

(617) 370-8837

 

Patrick O’Brien, Esq.

Michael S. Pilo, Esq.

Ropes & Gray LLP

800 Boylston Street

Boston, MA 02199-3600

(617) 951-7000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer      Accelerated Filer  
Non-Accelerated Filer      Smaller Reporting Company  
     Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each Class of
Securities to be Registered
 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Common Stock, par value $0.001 per share

  $200,000,000   $25,960

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JUNE 24, 2020

                     Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of our common stock. Prior to this offering, there has been no public market for our common stock. We are selling                 shares of our common stock. The initial public offering price of our common stock is expected to be between $         and $         per share.

We have applied to list our common stock on the Nasdaq Global Market under the symbol “RLAY.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

 

 

Investing in our common stock involves risks. See “Risk Factors” on page 12.

 

     Price to
Public
     Underwriting
Discounts and
Commissions
     Proceeds to
Company
 

Per Share

   $                        $                        $                    

Total

   $        $        $    

 

(1)

See “Underwriting” beginning on page 198 of this prospectus for additional information regarding underwriting compensation.

Delivery of the shares of common stock will be made on or about                 , 2020.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters have an option to purchase up to                 additional shares of common stock from us.

 

 

Joint Book-Running Managers

 

J.P. Morgan    Goldman Sachs & Co. LLC   Cowen   Guggenheim Securities

The date of this prospectus is                 , 2020.


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1  

THE OFFERING

     8  

SUMMARY CONSOLIDATED FINANCIAL DATA

     10  

RISK FACTORS

     12  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     63  

USE OF PROCEEDS

     65  

DIVIDEND POLICY

     67  

CAPITALIZATION

     68  

DILUTION

     70  

SELECTED CONSOLIDATED FINANCIAL DATA

     73  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     75  

BUSINESS

     92  

MANAGEMENT

     157  

EXECUTIVE COMPENSATION

     167  

DIRECTOR COMPENSATION

     178  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     181  

PRINCIPAL STOCKHOLDERS

     184  

DESCRIPTION OF CAPITAL STOCK

     187  

SHARES ELIGIBLE FOR FUTURE SALE

     192  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

     194  

UNDERWRITING

     198  

LEGAL MATTERS

     209  

EXPERTS

     209  

WHERE YOU CAN FIND MORE INFORMATION

     209  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

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Through and including                 , 2020 (25 days after the commencement of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

You should rely only on the information contained in this prospectus or in any free writing prospectus we file with the Securities and Exchange Commission, or the SEC. Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover page of this prospectus, or other earlier date stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, governmental publications, reports by market research firms, or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe that these sources are reliable; however, we have not independently verified the information contained in such publications. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section entitled “Risk Factors” and elsewhere in this prospectus. Some data are also based on our good faith estimates.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things, the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case appearing elsewhere in this prospectus. Unless the context otherwise requires, the terms “Relay,” “Relay Therapeutics,” “the Company,” “we,” “us,” and “our” in this prospectus refer to Relay Therapeutics, Inc. and its subsidiary.

Overview

We are a clinical-stage precision medicines company transforming the drug discovery process with an initial focus on enhancing small molecule therapeutic discovery in targeted oncology. Our company is built upon unparalleled insights into protein motion and how this dynamic behavior relates to protein function. These insights may enable us to more effectively drug protein targets that previously have been intractable (i.e. inadequately drugged or undruggable). We believe we have a differentiated approach to drug these protein targets based on their motion, which enables us to select and advance unique product candidates. We built our Dynamo platform to integrate an array of leading edge experimental and computational approaches, which allows us to apply our understanding of protein structure and motion to drug discovery.

We are advancing a pipeline of medicines to address targets in precision oncology, including our lead product candidates, RLY-1971 and RLY-4008, as well as our PI3Kα mutant selective program (RLY-PI3K1047 program). To date, we have not entered into partnerships to clinically develop or commercialize any of these programs. We initiated a Phase 1 clinical trial for RLY-1971, our inhibitor of Src homology region 2 domain-containing phosphatase-2 (SHP2), in patients with advanced solid tumors in the first quarter of 2020. We have completed Investigational New Drug, or IND, enabling activities for RLY-4008, our inhibitor of fibroblast growth factor receptor 2 (FGFR2) and expect to initiate a Phase 1 clinical trial for RLY-4008 in patients with advanced solid tumors having oncogenic FGFR2 alterations in the second half of 2020. We anticipate the RLY-PI3K1047 program, our program for molecules targeting cancer-associated mutant variants of phosphoinostide 3-kinase alpha (PI3Kα), to be in IND enabling studies in 2021. 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. In addition to the three product candidates described above, we have five discovery stage programs across 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.

Precision medicine aims to specifically and potently drug genetically validated target proteins (i.e., genetic variants potentially implicated in biology of disease). However, some target proteins thus far have been intractable using conventional drug discovery tools, such as structure-based drug design (SBDD). While SBDD is well-suited to solving some drug discovery problems such as orthosteric site kinase inhibitors, its reliance on static images of protein fragments limits its ability to gain accurate insights into the dynamic behavior of proteins in their natural state, which in turn limits its ability to discover medicines with exquisite specificity. Our approach pivots the understanding of protein targets from the industry-standard, static view, to a novel paradigm based on fundamental insights into protein motion. We then apply these novel insights into protein motion to drug discovery and design, which we term Motion Based Drug Design (MBDD).



 

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Our Dynamo Platform

Our Dynamo platform puts protein motion at the center of drug discovery and design, integrating a broad and tailored array of leading-edge experimental and computational approaches (Figure 1). This includes leveraging new experimental techniques such as room-temperature crystallography, and deploying the Anton 2 supercomputer, which was custom-built by D. E. Shaw Research to perform molecular dynamic simulations of proteins. We have access to the Anton 2 supercomputer, which we believe to be the only resource of computational power of its caliber, through our collaboration with D. E. Shaw Research, LLC, , or D. E. Shaw Research, pursuant to which we collaborate with D. E. Shaw Research to rapidly develop various protein models. Our use of the Anton 2 supercomputer and our collaboration with D. E. Shaw Research, LLC is subject to the terms and conditions of the Amended and Restated Collaboration and License Agreement with D. E. Shaw Research, or the DESRES Agreement. See “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC.”

Figure 1: Dynamo drug-discovery platform integrates leading-edge experimental and computational tools.

 

 

LOGO

We deploy the power of our Dynamo platform in three key phases of MBDD discovery:

 

   

Target Modulation Hypothesis. By generating fundamental insights into the structure and conformational dynamics of full-length proteins, our Dynamo platform enables us to model a target protein’s function, to develop unique motion-based hypotheses for how to modulate the protein’s behavior, and to identify potential novel binding sites for new therapeutic agents.

 

   

Hit Finding and Lead Generation. The integration of our computational and experimental platforms affords a deeper functional understanding of our targets and enables the design of physiologically relevant activity-based, ligand-centric and computational screens. These highly differentiated screens have the ability to yield a larger number of chemical series and potential therapies to proceed into lead optimization than conventional experimental techniques alone.

 

   

Lead Optimization. Our Dynamo platform uses advanced computational models in tight integration with our medicinal chemistry, structural biology, enzymology and biophysics capabilities to predict, design and experimentally evaluate compounds that will achieve the most desirable characteristics, including potency, selectivity, bioavailability, and drug-like properties. We believe our approach enables us to converge on optimized compounds with much greater efficiency than conventional approaches, which are typically highly iterative over an extended timeframe.



 

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Our Dynamo platform has the potential to address a diverse range of disease targets, including those proteins that have not been addressed selectively and potently with existing therapies. While we have initially focused our Dynamo platform on small molecule drug discovery in the area of precision oncology, we believe it could be readily deployed across broader precision and genetic medicine areas as well as other therapeutic modalities, such as protein therapeutics and antibody design.

Our Programs

We have deployed our technology platform to build a wholly owned pipeline of product candidates to address targets in precision oncology, where there is clear evidence linking target proteins to disease and where molecular diagnostics can unambiguously identify relevant patients for treatment. We believe this approach will increase the likelihood of successfully translating a specific pharmacological mechanism into clinical benefit. The targets associated with all of our current programs are Category 1 Targets under the DESRES Agreement. See “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC.”

 

 

LOGO

RLY-1971

RLY-1971 binds and stabilizes SHP2 in its inactive conformation. SHP2 promotes cancer cell survival and growth through the RAS pathway by transducing signals downstream from receptor tyrosine kinases (RTKs). Additionally, activating SHP2 mutations causes enhanced signaling in the absence of ligand stimulation and has been identified as an oncogenic driver in a range of tumors. As a critical signaling node and regulator, SHP2 drives cancer cell proliferation and plays a key role in the way cancer cells develop resistance to targeted therapies. We believe that inhibition of SHP2 could be effective as a monotherapy in cancers with specific alterations and could block a common path that cancer cells exploit to resist other antitumor agents, thus overcoming or delaying the onset of resistance to those therapies. We are currently evaluating the safety and tolerability of RLY-1971 in a Phase 1 dose escalation study in patients with advanced or metastatic solid tumors. We anticipate providing an update on clinical data and the clinical development plan in 2021. Given the range of cancers that are related to SHP2 dependence, in addition to its potential use in monotherapy settings, we believe RLY-1971 could serve as a backbone for compelling combination therapies. We believe SHP2-mediated cancers affect approximately 125,000 late-line patients annually in both monotherapy and combination therapy settings in the U.S. In the future, if RLY-1971 advances to earlier lines of treatment, we believe it could potentially have applicability to approximately 290,000 patients annually in the U.S.

RLY-4008

RLY-4008 is designed to be an oral, small molecule, selective inhibitor of fibroblast growth factor receptor 2, or FGFR2, a receptor tyrosine kinase that is frequently altered in certain cancers. FGFR2 is one of four members of



 

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the FGFR family, a set of closely related proteins with highly similar protein sequences and properties. RLY-4008 demonstrates FGFR2-dependent killing in cancer cell lines, while showing minimal inhibition of other targets, including other members of the FGFR family. We plan to initiate a Phase 1 clinical trial for RLY-4008 in patients with solid tumors having oncogenic FGFR2 alterations in the second half of 2020. We believe FGFR2-mediated cancers affect approximately 8,000 late-line patients annually in the U.S. In the future, if RLY-4008 advances to earlier lines of treatment, we believe it could potentially address approximately 20,000 patients annually in the U.S.

Mutant-PI3Kα Inhibitor Program

RLY-PI3K1047 is a lead compound in our franchise of programs targeting cancer-associated mutant variants of phosphoinositide 3-kinase alpha, or PI3Kα. RLY-PI3K1047 is a small molecule inhibitor of PI3Kα that we designed specifically to target PI3Kα H1047X mutants via a previously undescribed allosteric mechanism. Oral dosing of RLY-PI3K1047 resulted in tumor growth inhibition in mouse xenograft models of PI3Kα H1047R mutant carcinoma. We expect to begin IND-enabling studies for a differentiated PI3Kα H1047X mutant-selective inhibitor in 2021. We believe PI3Kα H1047X mutant cancers affect approximately 10,000 late-line patients annually in the U.S. In the future, if RLY-PI3K1047 advances to earlier lines of treatment, we believe it could potentially be suitable for use in approximately 50,000 patients annually in the U.S.

Two additional mutations of interest for our PI3Kα franchise are E542X and E545X. We estimate there are approximately 15,000 late-line and 60,000 total patients annually in the United States who might benefit from a PI3Kα targeted inhibitor that targets the mutations at E542 and E545.

Discovery Programs

We are deploying our Dynamo platform and MBDD approach to advance multiple discovery-stage precision oncology programs. As with our lead programs, these programs leverage insights into protein conformational dynamics to address high-value, genetically validated oncogenes that previously have been intractable to conventional drug-discovery approaches. Our Dynamo platform’s protein visualization capabilities can be applied to multiple therapeutic areas beyond precision oncology. To further diversify our pipeline, we are leveraging our Dynamo platform to address validated targets in monogenic diseases, where genetic alterations lead to disease-causing defects in protein motion.

Our Strategy

Our mission is to leverage unique insights into protein motion to transform the lives of patients suffering from debilitating and life-threatening diseases through the discovery, development and commercialization of small molecule therapies. We believe that, by placing protein motion at the heart of MBDD discovery, our unique Dynamo platform has the potential to address previously intractable precision medicine targets. To accomplish this, we intend to continue building a team that shares our commitment to patients, to continue to enhance our platform, and to rapidly advance our precision medicine pipeline of product candidates. The key elements of our strategy are to:

 

   

Rapidly advance our lead precision oncology programs, RLY-1971, RLY-4008, RLY-PI3K1047, through clinical development and regulatory approval

 

   

Continue to enhance our unique drug-discovery platform

 

   

Harness the insights and data generated from our platform against intractable targets in oncology and other therapeutic areas

 

   

Selectively enter into strategic collaborations to maximize the value of our platform and pipeline



 

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Our Team

Our company was founded and continues to be supported by world-class scientific advisors, including: Dr. Matt Jacobson, Dr. Mark Murcko and, Dr. Dorothee Kern, as well as by D. E. Shaw Research, led by chief scientist Dr. David E. Shaw. We are leaders in leveraging insights into the dynamic behavior of proteins in drug discovery. We have assembled a scientific team with extensive expertise in leading-edge experimental and computational drug discovery approaches, as well as a development team with extensive experience in the pre-clinical development, translational medicine, clinical development, and commercialization of precision oncology medicines. In aggregate, our team has previously submitted over 70 INDs and 20 NDAs and contributed to the development of more than 20 approved products. Our President and Chief Executive Officer, Dr. Sanjiv K. Patel, has more than 15 years of experience in the biopharmaceutical industry, and has led our key business operations and strategic corporate planning activities since 2017. Dr. Don Bergstrom, our Head of Research and Development, has more than 15 years of experience in the biopharmaceutical industry and has held various leadership positions at other companies in oncology drug discovery, development, and translational medicine. Members of our management team have held leadership positions at companies that have successfully discovered, developed and commercialized therapies for various cancers and devastating rare diseases. These companies include Allergan, Algeta, Blueprint Medicines, Eli Lilly, Merck, Novartis, Sanofi, and Vertex. Through April 30, 2020, we have raised approximately $520 million supported by a leading syndicate of investors, including SoftBank Vision Fund, Third Rock Ventures, an affiliate of D. E. Shaw Research, BVF Partners, Casdin Capital, EcoR1 Capital, Foresite Capital, GV, Perceptive Advisors, Alexandria Equities, Tavistock, and Section 32.

Recent Developments

Since it was first reported to have emerged in December 2019, a novel strain of coronavirus, which causes COVID-19, has spread around the world, including Cambridge, Massachusetts where our primary office and laboratory space are located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts our operations or those of our third-party partners, including our preclinical studies, clinical trials or manufacturing operations, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, other than those performing or supporting business-critical functions, such as certain members of our laboratory staff, suspending all non-essential travel worldwide for our employees and employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. For those employees that are performing or supporting business-critical functions, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and government agencies, such as the Securities and Exchange Commission, or SEC, or FDA.

Risks Associated with Our Business

Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled “Risk Factors” in this prospectus. These risks include, among others:

 

   

We are a clinical-stage biopharmaceutical company with a limited operating history and have not generated any revenue to date from drug sales, and may never become profitable.



 

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We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.

 

   

Even if we consummate this offering, we will need to raise substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate some of our product development programs or commercialization efforts.

 

   

We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our current or future product candidates.

 

   

Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.

 

   

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

 

   

If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially.

 

   

Our current or future product candidates may cause adverse or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

 

   

Even if we receive regulatory approval for any of our current or future product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

 

   

We rely, and expect to continue to rely, on D. E. Shaw Research for certain capabilities of our Dynamo platform, and other third parties to conduct our ongoing and planned clinical trials for our current and future product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize our current and potential future product candidates and our business could be substantially harmed.

 

   

If we are unable to obtain and maintain patent and other intellectual property protection for our technology and product candidates or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be impaired.

Corporate history

We were incorporated under the laws of the State of Delaware on May 4, 2015 under the name “Allostery, Inc.” Our principal corporate office is located at 399 Binney Street, 2nd Floor, Cambridge, MA 02139, and our telephone number is (617) 370-8837. Our website address is www.relaytx.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

We own various U.S. federal trademark applications and unregistered trademarks, including our company name. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and , but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.



 

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Implications of Being an Emerging Growth Company and a Smaller Reporting Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

   

being permitted to only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

reduced disclosure about our executive compensation arrangements;

 

   

not being required to hold advisory votes on executive compensation or to obtain stockholder approval of any golden parachute arrangements not previously approved; and

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the last day of the fiscal year in which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.



 

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THE OFFERING

 

Common stock offered by us

                shares.

 

Common stock to be outstanding immediately after this offering

                shares (                 shares if the underwriters exercise their option to purchase additional shares in full).

 

Underwriters’ option to purchase additional shares

We have granted a 30-day option to the underwriters to purchase up to an aggregate of                 additional shares of common stock from us at the initial public offering price, less underwriting discounts and commissions on the same terms as set forth in this prospectus.

 

Use of proceeds

We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $         million, or $         million if the underwriters exercise in full their option to purchase additional shares, assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We currently intend to use the net proceeds from this offering to fund drug discovery and clinical development efforts as well as further expansion of our manufacturing platform and capabilities, and infrastructure to support our pipeline. See “Use of Proceeds” for additional information.

 

Risk factors

You should carefully read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

 

Proposed Nasdaq Global Market symbol

RLAY

The number of shares of our common stock to be outstanding after this offering is based on 17,000,610 shares of our common stock outstanding as of March 31, 2020, including 1,611,810 shares of non-vested restricted common stock, and 212,642,857 shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock immediately prior to the completion of this offering, and excludes:

 

   

26,241,028 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2020, at a weighted average exercise price of $1.35 per share;

 

   

3,360,008 shares of common stock reserved for future issuance as of March 31, 2020 under our 2016 Relay Therapeutics, Inc. Stock Option and Grant Plan, as amended, or 2016 Plan, which will cease to be available for issuance at the time that our 2020 Stock Option and Incentive Plan, or 2020 Stock Plan, becomes effective;

 

   

                shares of our common stock that will become available for future issuance under our 2020 Stock Plan, which will become effective in connection with the completion of this offering; and

 

   

                shares of our common stock that will become available for future issuance under our 2020 Employee Stock Purchase Plan, or ESPP, which will become effective in connection with the completion of this offering.



 

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Except as otherwise indicated, all information in this prospectus assumes or gives effect to:

 

   

the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 212,642,857 shares of our common stock immediately prior to the completion of this offering;

 

   

no exercise of the outstanding options described above;

 

   

no exercise by the underwriters of their option to purchase up to an additional                shares of our common stock in this offering;

 

   

a one-for-                 reverse split of our common stock, which will become effective prior to the completion of this offering; and

 

   

the filing of our fourth amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, which will occur immediately prior to the completion of this offering.



 

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SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the following summary financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus. We have derived the statement of operations data for the years ended December 31, 2018 and 2019 from our audited consolidated financial statements appearing at the end of this prospectus. The statement of operations data for the three months ended March 31, 2019 and 2020 and the balance sheet data as of March 31, 2020 have been derived from our unaudited financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2018     2019     2019     2020  
     (in thousands, except share and per share data)  

Statement of Operations Data:

      

Operating expenses:

        

Research and development expenses

   $ 41,034     $ 70,306     $ 13,335     $ 21,700  

General and administrative expenses

     8,855       13,742       3,067       4,758  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     49,889       84,048       16,402       26,458  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (49,889     (84,048     (16,402     (26,458

Other income (expense), net

     1,104       8,743       2,220       1,572  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (48,785   $ (75,305   $ (14,182   $ (24,886
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted(1)

   $ (5.53   $ (6.15   $ (1.29   $ (1.69
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock, basic and diluted

     8,824,617       12,252,452       10,964,458       14,749,780  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(2)

     $ (0.33     $ (0.11
    

 

 

     

 

 

 

Pro forma weighted average shares of common stock, basic and diluted (unaudited)

       224,827,070         227,392,637  
    

 

 

     

 

 

 

 

(1)

See Note 11 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted net loss per share.

(2)

See Note 12 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted pro forma net loss per share.

The following table sets forth summary balance sheet data as of March 31, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 212,642,857 shares of common stock immediately prior to the completion of this offering; and



 

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on a pro forma as adjusted basis to give further effect to our issuance and sale                 of                  shares of our common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of March 31, 2020  
     Actual     Pro Forma      Pro Forma
As Adjusted(2)
 
     (in thousands)  

Balance Sheet Data:

       

Cash, cash equivalents, restricted cash, and investments

   $ 335,081     $ 335,081     

Working capital(1)

     327,118       327,118     

Total assets

     370,274       370,274     

Convertible preferred stock

     537,781       —       

Total stockholders’ equity (deficit)

     (202,351     335,430     

 

(1)

We define working capital as current assets less current liabilities.

(2)

A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash, cash equivalents, restricted cash and investments, working capital, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase or decrease of                  shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash, cash equivalents, restricted cash and investments, working capital, total assets and total stockholders’ equity by $         million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions. This pro forma as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Financial Position, Business, Technology, and Industry

We are a biopharmaceutical company with a limited operating history.

We are a biopharmaceutical company with a limited operating history and have incurred net losses in each year since our inception. Our net losses were $48.8 million, $75.3 million, $14.2 million and $24.9 million for the years ended December 31, 2018 and 2019 and the three months ended March 31, 2019 and 2020, respectively. We had an accumulated deficit of $214.4 million as of March 31, 2020. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We commenced operations in May 2015. Since inception, we have focused substantially all of our efforts and financial resources on developing our drug discovery platform and initial product candidates. We have no products approved for commercial sale and therefore have never generated any revenue from product sales, and we do not expect to in the foreseeable future. We have not obtained regulatory approvals for any of our product candidates and there is no assurance that we will obtain approvals in the future. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.

Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect our research and development expenses to significantly increase in connection with the commencement and continuation of clinical trials of our product candidates. In addition, if we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced-manufacturing expenses. Once we are a public company, we will incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

The amount of our future losses is uncertain and our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline. Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:

 

   

the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;

 

   

our ability to successfully recruit and retain subjects for clinical trials, and any delays caused by difficulties in such efforts;

 

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our ability to obtain marketing approval for our product candidates, and the timing and scope of any such approvals we may receive;

 

   

the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time;

 

   

the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;

 

   

our ability to attract, hire and retain qualified personnel;

 

   

expenditures that we will or may incur to develop additional product candidates;

 

   

the level of demand for our product candidates should they receive approval, which may vary significantly;

 

   

the risk/benefit profile, cost and reimbursement policies with respect to our product candidates, if approved, and existing and potential future therapeutics that compete with our product candidates;

 

   

the changing and volatile U.S. and global economic environments, including as a result of the COVID-19 pandemic; and

 

   

future accounting pronouncements or changes in our accounting policies.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

We have no products approved for commercial sale and have not generated any revenue from product sales

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our product candidates and we do not expect to generate any revenue from the sale of products in the near future. We do not expect to generate significant revenue unless and until we obtain marketing approval of, and begin to sell one or more of our product candidates. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

 

   

successfully complete preclinical studies;

 

   

successfully enroll subjects in, and complete, clinical trials;

 

   

have our IND applications go into effect for our planned clinical trials or future clinical trials;

 

   

receive regulatory approvals from applicable regulatory authorities;

 

   

initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our product candidates;

 

   

establish commercial manufacturing capabilities or make arrangements with third-party manufacturers for clinical supply and commercial manufacturing;

 

   

obtain and maintain patent and trade secret protection or regulatory exclusivity for our product candidates;

 

   

launch commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

 

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obtain and maintain acceptance of the product candidates, if and when approved, by patients, the medical community and third party payors;

 

   

effectively compete with other therapies;

 

   

obtain and maintain healthcare coverage and adequate reimbursement;

 

   

enforce and defend intellectual property rights and claims;

 

   

take temporary precautionary measures to help minimize the risk of the COVID-19 to our employees; and

 

   

maintain a continued acceptable safety profile of the product candidates following approval.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Even if we consummate this offering, we will need to raise substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate some of our product development programs or commercialization efforts.

The development of pharmaceutical products is capital-intensive. We have only initiated a Phase 1 monotherapy dose escalation Phase 1 clinical trial of RLY-1971 in patients with advanced solid tumors. We are currently advancing most of our product candidates through preclinical development and anticipate beginning a Phase 1 clinical trial for RLY-4008 in the second half of 2020. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, depending on the status of regulatory approval or, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We may also need to raise additional funds sooner if we choose to pursue additional indications and/or geographies for our product candidates or otherwise expand more rapidly than we presently anticipate. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate certain of our research and development programs or future commercialization efforts.

We expect that the net proceeds from this offering, together with our existing cash and cash equivalents and investments will be sufficient to fund our operations through at least                . Our future capital requirements will depend on and could increase significantly as a result of many factors, including:

 

   

the scope, progress, results and costs of product discovery, preclinical and clinical development, laboratory testing and clinical trials for our product candidates;

 

   

the potential additional expenses attributable to adjusting our development plans (including any supply related matters) to the COVID-19 pandemic;

 

   

the scope, prioritization and number of our research and development programs;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

our ability to establish and maintain additional collaborations on favorable terms, if at all;

 

   

the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain;

 

   

the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any;

 

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

the extent to which we acquire or in-license other product candidates and technologies;

 

   

the costs of securing manufacturing arrangements for commercial production; and

 

   

the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates.

Identifying potential product candidates and conducting preclinical development testing 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 and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Disruptions in the financial markets in general and more recently due to the COVID-19 pandemic have made equity and debt financing more difficult to obtain, and may have a material adverse effect on our ability to meet our fundraising needs. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborators or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

Raising additional capital may cause dilution to our stockholders, including purchasers of common -stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that materially adversely affect your rights as a common stockholder. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research

 

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programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We have never successfully completed any clinical trials, and we may be unable to do so for any product candidates we develop.

We have not yet demonstrated our ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. We only have one product candidate, a SHP2 inhibitor (RLY-1971), in Phase 1 clinical development. We filed an IND application and received clearance to begin a Phase 1 clinical trial for our FGFR2 program in the second half of 2020. We expect to be in IND-enabling studies for our PI3K program by the end of 2021. We may not be able to file such IND or INDs for any of our other product candidates on the timelines we expect, if at all. For example, we may experience manufacturing delays with IND-enabling studies. Moreover, we cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to begin, or that, once begun, issues will not arise that require us to suspend or terminate clinical trials. Commencing each of these clinical trials is subject to finalizing the trial design based on discussions with the FDA and other regulatory authorities. Any guidance we receive from the FDA or other regulatory authorities is subject to change. These regulatory authorities could change their position, including, on the acceptability of our trial designs or the clinical endpoints selected, which may require us to complete additional clinical trials or impose stricter approval conditions than we currently expect. Successful completion of our clinical trials is a prerequisite to submitting a new drug application, or NDA, to the FDA and a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, for each product candidate and, consequently, the ultimate approval and commercial marketing of each product candidate. We have initiated our Phase 1 RLY-1971 clinical trial, but we do not know whether any of our future clinical trials will begin on time or ever be completed on schedule, if at all.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

   

be delayed in obtaining marketing approval for our product candidates;

 

   

not obtain marketing approval at all;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

be subject to post-marketing testing requirements; or

 

   

have the product removed from the market after obtaining marketing approval.

Clinical product development involves a lengthy and expensive process, with an uncertain outcome.

It is impossible to predict when or if any of our product candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Our preclinical studies and future clinical trials may not be successful.

 

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From time to time, we may publish interim top-line or preliminary data from our clinical trials. Interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.

We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

We may experience delays in completing our preclinical studies and initiating or completing clinical trials, and we may experience numerous unforeseen events during, or as a result of, any future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

 

   

regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

   

we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;

 

   

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

 

   

our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;

 

   

we may elect to, or regulators or IRBs or ethics committees may require us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

   

the cost of clinical trials of our product candidates may be greater than we anticipate;

 

   

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

   

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise from preclinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our product candidates.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination or clinical hold due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from

 

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using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.

Our product development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our future clinical trials will begin as planned, or whether any of our current or future clinical trials will need to be restructured or will be completed on schedule, if at all. Significant preclinical study or clinical trial delays, including those caused by the COVID-19 pandemic, also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. Any delays in our preclinical or future clinical development programs may harm our business, financial condition and prospects significantly.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we will be deploying our drug discovery platform across a broad target space, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Furthermore, our ability to enroll patients may be significantly delayed by the evolving COVID-19 pandemic and we do not know the extent and scope of such delays at this point.

In addition to the competitive trial environment, the eligibility criteria of our planned clinical trials will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure to assure their cancer is either severe enough or not too advanced to include them in a study. Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and benefits of the product candidates under study, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective patients, and the patient referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed.

We may also engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful in developing such companion diagnostics, furthering the difficulty in identifying patients with the targeted genetic mutations for our clinical trials. Further, if we are required to develop companion diagnostics and are unable to include patients with the targeted genetic mutations, this could compromise our ability to seek participation in the FDA’s expedited review and development programs, including Breakthrough Therapy Designation and Fast Track Designation, or otherwise to seek to accelerate clinical development and regulatory timelines. The FDA has indicated that if we continue RLY-4008 in a specific biomarker-defined population, a companion diagnostic device will be required to ensure its safe and effective use.

Patient enrollment may be affected by other factors including:

 

   

the severity of the disease under investigation;

 

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the eligibility criteria for the clinical trial in question;

 

   

the availability of an appropriate genomic screening test;

 

   

the perceived risks and benefits of the product candidate under study;

 

   

the efforts to facilitate timely enrollment in clinical trials;

 

   

the patient referral practices of physicians;

 

   

the ability to monitor patients adequately during and after treatment;

 

   

the proximity and availability of clinical trial sites for prospective patients; and

 

   

factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or clinical site availability (e.g., outbreak of COVID-19).

Positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results from our earlier preclinical studies of our product candidates in our later preclinical studies and future clinical trials, we may be unable to successfully develop, obtain regulatory for and commercialize our product candidates.

Any positive results from our preclinical studies of our product candidates may not necessarily be predictive of the results from required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any future clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical and other nonclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval.

Our planned clinical trials or those of our future collaborators may reveal significant adverse events not seen in our preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. In addition, initial success in clinical trials may not be indicative of results obtained when such trials are completed. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials also may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates.

 

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We may develop future product candidates, in combination with one or more cancer therapies. The uncertainty resulting from the use of our product candidates in combination with other cancer therapies may make it difficult to accurately predict side effects in future clinical trials.

As is the case with many treatments for cancer and rare diseases, it is likely that there may be side effects associated with the use of our product candidates. If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. We, the FDA or other applicable regulatory authorities, or an IRB may suspend or terminate clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.

We intend to develop our SHP2 program, our FGFR2 program, our PI3K program, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.

We intend to develop our SHP2 program, our FGFR2 program, or our PI3K program, and may develop future product candidates, for use in combination with one or more currently approved cancer therapies. Even if any product candidate we develop was to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to bear the risks that the FDA or similar foreign regulatory authorities could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

We may also evaluate our SHP2 program, our FGFR2 program, or our PI3K program or any other future product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA or similar foreign regulatory authorities. We will not be able to market and sell our SHP2 program, our FGFR2 program, or our PI3K program or any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

If the FDA or similar foreign regulatory authorities do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with our SHP2 program, our FGFR2 program, or our PI3K program or any product candidate we develop, we may be unable to obtain approval of or market our SHP2 program, our FGFR2 program, or our PI3K program or any product candidate we develop.

Our product candidates utilize a novel mechanism of action and novel binding locations, which may result in greater research and development expenses, regulatory issues that could delay or prevent approval, or discovery of unknown or unanticipated adverse effects.

Our product candidates utilize novel mechanisms of action and novel binding locations, which may result in greater research and development expenses, regulatory issues that could delay or prevent approval, or discovery of unknown or unanticipated adverse effects. Our Dynamo platform uses advanced computational models in tight integration with our medicinal chemistry, structural biology, enzymology and biophysics capabilities to predict and design the compounds that will achieve the most desirable characteristics, including potency, selectivity, bioavailability, and drug-like properties. A disruption in any of these capabilities may have significant adverse

 

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effects in our abilities to expand our Dynamo platform, and we cannot predict whether we will continue to have access to these capabilities in the future to support our Dynamo platform. In addition, there can be no assurance that we will be able to rapidly identify, design and synthesize the necessary compounds or that these or other problems related to the development of this novel mechanism will not arise in the future, which may cause significant delays or we raise problems we may not be able to resolve.

Regulatory approval of novel product candidates such as ours can be more expensive, riskier and take longer than for other, more well-known or extensively studied pharmaceutical or biopharmaceutical product candidates due to our and regulatory agencies’ lack of experience with them. The novelty of our mechanism of action may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. The novel mechanism of action also means that fewer people are trained in or experienced with product candidates of this type, which may make it more difficult to find, hire and retain personnel for research, development and manufacturing positions. Because our inhibitors utilize a novel mechanism of action that has not been the subject of extensive study compared to more well-known product candidates, there is also an increased risk that we may discover previously unknown or unanticipated adverse effects during our preclinical studies and clinical trials. Any such events could adversely impact our business prospects, financial condition and results of

operations.

We may in the future conduct clinical trials for our product candidates outside the United States, and the FDA and similar foreign regulatory authorities may not accept data from such trials.

We may in the future choose to conduct additional clinical trials outside the United States, including in Australia, Europe, Asia or other foreign jurisdictions. The acceptance of trial data from clinical trials conducted outside the United States by the FDA may be subject to certain conditions. In cases where data from clinical trials conducted outside the United States are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence and (iii) the data may be considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any similar foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any similar foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.

The incidence and prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially.

We are currently evaluating the safety and tolerability of RLY-1971 in a Phase 1 dose escalation study in patients with advanced or metastatic solid tumors. We estimate that, across all solid tumors, there are approximately 68,000 late-line patients annually in the U.S. who might benefit from a SHP2 targeted inhibitor as a monotherapy. Additionally, we estimate there are more than 56,000 late-line patients annually in the U.S. with advanced lung cancer who might benefit from a combination of RLY-1971 with another targeted inhibitor. This results in approximately 125,000 late-line cancer patients annually in the U.S. that could benefit from RLY-1971.

 

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In the future, if RLY-1971 advances to earlier lines of treatment, it could potentially address approximately 290,000 patients annually in the U.S. We plan to initiate a Phase 1 clinical trial for RLY-4008 in solid tumor patients with oncogenic FGFR2 alterations in the second half of 2020. We believe FGFR2-mediated cancers affect approximately 8,000 late-line patients annually in the U.S., of which fusions represent approximately 2,700, amplifications 1,600, and mutations 3,800. In the future, if RLY-4008 advances to earlier lines of treatment, it could potentially address approximately 20,000 patients annually in the U.S. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with RLY-1971, RLY-4008 or our product candidates, are based on estimates.

The total addressable market opportunity will ultimately depend upon, among other things, the diagnosis criteria included in the final label, if our product candidates are approved for sale for these indications, acceptance by the medical community and patient access, product pricing and reimbursement. The number of patients with cancers and solid tumors may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. We may not be successful in our efforts to identify additional product candidates. Due to our limited resources and access to capital, we must prioritize development of certain product candidates, which may prove to be the wrong choice and may adversely affect our business.

Although we intend to explore other therapeutic opportunities, in addition to the product candidates that we are currently developing, we may fail to identify viable new product candidates for clinical development for a number of reasons. If we fail to identify additional potential product candidates, our business could be materially harmed.

Research programs to pursue the development of our existing and planned product candidates for additional indications and to identify new product candidates and disease targets require substantial technical, financial and human resources whether or not they are ultimately successful. For example, pursuant to our Amended and Restated Collaboration and License Agreement with D. E. Shaw Research, LLC, or the DESRES Agreement, we collaborate with D. E. Shaw Research, LLC, or D. E. Shaw Research, to develop various protein models and make predictions as to how molecules might move, with subsequent validation efforts in our and our CROs’ labs. There can be no assurance that we will find potential additional targets using this approach, that any such targets will be tractable, or that such clinical validations will be successful. Our research programs may initially show promise in identifying potential indications and/or product candidates, yet fail to yield results for clinical development for a number of reasons, including:

 

   

the research methodology used may not be successful in identifying potential indications and/or product candidates;

 

   

potential product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective products; or

 

   

it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our product portfolio.

Because we have limited financial and human resources, we intend to initially focus on research programs and product candidates for a limited set of indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs,

 

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which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful.

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Before we can commercialize any of our product candidates, we must obtain marketing approval. Currently, all of our product candidates are in development, and we have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. It is possible that our product candidates, including any product candidates we may seek to develop in the future, will never obtain regulatory approval. We have only limited experience in filing and supporting the applications necessary to gain regulatory approvals and expect to rely on third-party CROs and/or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. In addition, regulatory authorities may find fault with our manufacturing process or facilities or that of third-party contract manufacturers. We may also face greater than expected difficulty in manufacturing our product candidates.

The process of obtaining regulatory approvals, both in the United States and abroad, is expensive and often takes many years. If the FDA or a comparable foreign regulatory authority requires that we perform additional preclinical or clinical trials, approval, if obtained at all, may be delayed. The length of such a delay varies substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted NDA, 510(k), premarket approval application, or PMA, or equivalent application types, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:

 

   

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

   

we may not be able to enroll a sufficient number of patients in our clinical studies;

 

   

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication or a related companion diagnostic is suitable to identify appropriate patient populations;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;

 

   

the FDA or comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change such that our clinical data are insufficient for approval.

Even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, thereby narrowing the commercial potential of the product candidate. In addition, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our or related parties’ cyber security.

Given our limited operating history, we are still in the process of implementing our internal security measures. Our internal computer systems and those of current and future third parties on which we rely may fail and are vulnerable to damage from computer viruses and unauthorized access. Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our operations. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidate or any future product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidate or any future product candidates could be hindered or delayed. In addition, in response to the ongoing COVID-19 pandemic, a majority of our workforce is currently working remotely. This could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

 

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Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, in 2008, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets and the current COVID-19 pandemic has caused significant volatility and uncertainty in U.S. and international markets. See “—A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates. A severe or prolonged economic downturn could result in a variety of risks to our business, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Our current operations are located in Massachusetts; and we or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our current operations are located in Massachusetts. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, including any potential effects from the current global spread of COVID-19, power shortage, telecommunication failure or other natural or man-made accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract manufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of our product candidates or interruption of our business operations. Natural disasters or pandemics such as the COVID-19 outbreak could further disrupt our operations, and have a material and adverse effect on our business, financial condition, results of operations and prospects. For example, we have instituted a temporary work from home policy for non-essential office personnel and it is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure our investors that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities or the manufacturing facilities of our third-party contract manufacturers are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects.

 

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A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. Recently, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes COVID-19 has spread to most countries across the world, including all 50 states within the U.S., including specifically Cambridge, Massachusetts where our primary office and laboratory space is located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts our operations or those of our third party partners, including our preclinical studies or clinical trial operations, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The continued spread of COVID-19 globally could adversely impact our preclinical or clinical trial operations in the U.S., including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. For example, similar to other biopharmaceutical companies, we may experience delays in initiating IND-enabling studies, protocol deviations, enrolling our clinical trials, or dosing of patients in our clinical trials as well as in activating new trial sites. COVID-19 may also affect employees of third-party CROs located in affected geographies that we rely upon to carry out our clinical trials. In addition, as a result of medical complications associated with SDC and mCPRC, the patient populations that our lead core and other core product candidates target may be particularly susceptible to COVID-19, which may make it more difficult for us to identify patients able to enroll in our current and future clinical trials and may impact the ability of enrolled patients to complete any such trials. Any negative impact COVID-19 has to patient enrollment or treatment or the execution of our product candidates could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites which could be adversely affected by global health matters, such as pandemics. We plan to conduct clinical trials for our product candidates in geographies which are currently being affected by the coronavirus. Some factors from the coronavirus outbreak that will delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as our business generally, include:

 

   

the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our prospective clinical trials;

 

   

limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could delay or adversely impact the conduct or progress of our prospective clinical trials;

 

   

the potential negative affect on the operations of our third-party manufacturers;

 

   

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product and conditioning drugs and other supplies used in our prospective clinical trials; and

 

   

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments

 

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and operations, staffing shortages, travel limitations or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and government agencies, such as the Securities and Exchange Commission, or the SEC, or FDA.

These and other factors arising from the coronavirus could worsen in countries that are already afflicted with the coronavirus or could continue to spread to additional countries. Any of these factors, and other factors related to any such disruptions that are unforeseen, could have a material adverse effect on our business and our results of operation and financial condition. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the United States and other economies, which could impact our ability to raise the necessary capital needed to develop and commercialize our product candidates.

Risks Related to Our Reliance on Third Parties

Under the DESRES Agreement, we collaborate with D. E. Shaw Research to rapidly develop various protein models, a process that depends on D. E. Shaw Research’s use of their proprietary supercomputer, Anton 2. A termination of the DESRES Agreement could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Under the DESRES Agreement, we collaborate with D. E. Shaw Research to develop various protein models to make predictions as to how molecules might move in connection with identifying potential new biological targets and prospective drug compounds. There can be no assurance these protein models, or the technology used by D. E. Shaw Research to develop them (including the Anton 2 supercomputer), will provide reliable data or target information, or that the findings from these activities and our subsequent validation efforts will translate into the ability to develop therapeutically effective compounds. Our collaboration with D. E. Shaw Research is our key computational collaboration, and there can be no assurance that this collaboration will continue past the current term of the DESRES Agreement, on favorable terms or at all, or that at any time while the collaboration is in effect D. E. Shaw Research will provide a level of service that benefits our programs in a meaningfully positive manner. While we also have other computational collaborations, mostly focused on developing machine learning models, such collaborations do not provide a substitute for the technology made available through our collaboration with D. E. Shaw Research. The termination of the DESRES Agreement or any reduction in our collaboration with D. E. Shaw Research would require us to rely more heavily on these other collaborations and our own internal resources, and may delay or impair our development efforts.

Furthermore, while the termination of the DESRES Agreement would not directly impact the development of our lead product candidates, we cannot predict the effects such termination could have on our preclinical studies and development efforts and our ability to discover and develop additional product candidates. In particular, the technologies accessed through D. E. Shaw Research, including the Anton 2 supercomputer, are important aspects of our Dynamo platform, and we do not currently have access to another source of computational power comparable to that provided by the Anton 2 supercomputer. Currently, not only is our collaboration with D. E. Shaw Research for a limited time period, but it is also limited in the current collaboration year to collaboration across a total of eleven target proteins (with such number subject to increases or decreases from year to year, with any increase in such number of targets in each collaboration year capped at four more than the highest number of such targets in the previous year, and with the number of targets capped at twenty, subject to some limitations), which could restrict our ability to broaden our platform across a larger number of targets and programs.

 

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Under the DESRES Agreement, D. E. Shaw Research controls the rights to its technology, we control the rights to certain compounds, and we jointly own with D. E. Shaw Research any other work product created by D. E. Shaw Research and us. Any work product we jointly own with D. E. Shaw Research and any other information that we or D. E. Shaw Research share is subject to a non-exclusive cross-license between us and D. E. Shaw Research, subject to certain exceptions. In some instances, D. E. Shaw Research is required to assign to us some of the work product created by D. E. Shaw Research. Disputes may arise between us and D. E. Shaw Research, as well as any future potential collaborators, regarding intellectual property subject to the DESRES Agreement. If disputes over intellectual property that we co-own or we own individually prevent or impair our ability to maintain our current collaboration arrangements on acceptable terms, or undermine our ability to successfully control the intellectual property necessary to protect our product candidates, we may be unable to successfully develop and commercialize the affected product candidates. Uncertainties or disagreements around our rights under any such intellectual property may undermine our ability to partner our programs with third parties.

In addition, the DESRES Agreement is complex and certain provisions may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could be adverse to us, for example by narrowing what we believe to be the scope of our rights to certain intellectual property, or increasing what we believe to be our financial or other obligations under the DESRES Agreement, and any such outcome could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we co-own, as we are for intellectual property that we own, which are described below. If we or D. E. Shaw Research fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

Moreover, we are subject to certain payment obligations under the DESRES Agreement, including payments to D. E. Shaw Research in connection with certain transactions. These payment obligations may decrease the value to us of certain transactional opportunities or otherwise burden our ability to enter into such transactions.

We rely on third parties to conduct our Phase 1 clinical trial of RLY-1971 and expect to rely on third parties to conduct future clinical trials, as well as investigator-sponsored clinical trials of our product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We do not have the ability to independently conduct clinical trials. We rely and expect to continue to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support clinical trials for our product candidates, including our Phase 1 clinical trial of RLY-1971. We may also rely on academic and private non-academic institutions to conduct and sponsor clinical trials relating to our product candidates. We will not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or non-U.S. regulatory authorities will not view these investigator-sponsored trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.

Such arrangements will likely provide us certain information rights with respect to the investigator-sponsored trials, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the investigator-sponsored trials. However, we would not have control over the timing and reporting of the data from investigator-sponsored trials, nor would we own the data from the investigator-sponsored trials. If we are unable to confirm or replicate the results from the investigator-sponsored trials or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development of our product candidates. Further, if investigators or institutions breach their obligations with respect to the clinical development of our product candidates, or if the data proves to be inadequate compared to

 

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the first-hand knowledge we might have gained had the investigator-sponsored trials been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.

We rely and expect to continue to rely heavily on these parties for execution of clinical trials for our product candidates and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

We, our principal investigators and our CROs are required to comply with regulations, including Good Clinical Practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we, our principal investigators or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCPs. In addition, our clinical trials must be conducted with product candidates produced under current Good Manufacturing Practice, or cGMP, regulations. Our failure or the failure of our principal investigators or CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Although we designed our Phase 1 clinical trial of RLY-1971 and intend to design the future clinical trials for our product candidates, we expect that CROs will conduct all of our clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are outside of our direct control. Our reliance on third parties to conduct future clinical trials also results in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

 

   

have staffing difficulties;

 

   

fail to comply with contractual obligations;

 

   

experience regulatory compliance issues;

 

   

undergo changes in priorities or become financially distressed; or

 

   

form relationships with other entities, some of which may be our competitors.

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. If the principal investigators or CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our product candidates, or our development program materially and irreversibly harmed. If we are unable to rely on clinical data collected

 

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by our principal investigators or CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party principal investigators or CROs terminate, we may not be able to enter into arrangements with alternative CROs. If principal investigators or CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such principal investigators or CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We contract with third parties for the manufacture of our product candidates for preclinical development, clinical testing, and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not currently own or operate, nor do we have any plans to establish in the future, any manufacturing facilities or personnel. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical development and clinical testing, as well as for the commercial manufacture of our products if any of our product candidates receive marketing approval. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

The facilities used by our contract manufacturers to manufacture our product candidates must be inspected by the FDA pursuant to pre-approval inspections that will be conducted after we submit our marketing applications to the FDA. We do not control the manufacturing process of, and will be completely dependent on, our contract manufacturers for compliance with cGMPs in connection with the manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to pass regulatory inspections and/or maintain regulatory compliance for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority finds deficiencies with or does not approve these facilities for the manufacture of our product candidates or if it finds deficiencies or withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Further, our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, if approved, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business and supplies of our product candidates.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third -party manufacturers entails additional risks, including:

 

   

reliance on the third party for regulatory compliance and quality assurance;

 

   

the possible breach of the manufacturing agreement by the third party;

 

   

the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

Our product candidates and any products that we may develop may compete with other product candidates and approved products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. If our current contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. We may incur added costs and delays in identifying and qualifying any such replacement.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

The third parties upon whom we rely for the supply of the active pharmaceutical ingredient used in our product candidates are our sole source of supply, and the loss of any of these suppliers could significantly harm our business.

The active pharmaceutical ingredients, or API, used in our product candidates are supplied to us from single-source suppliers. Our ability to successfully develop our product candidates, and to ultimately supply our commercial products in quantities sufficient to meet the market demand, depends in part on our ability to obtain the API for these products in accordance with regulatory requirements and in sufficient quantities for clinical testing and commercialization. We do not currently have arrangements in place for a redundant or second-source supply of any such API in the event any of our current suppliers of such API cease their operations for any reason. We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 pandemic will affect our third-party suppliers and manufacturers. Any negative impact of such matters on our third-party suppliers and manufacturers may also have an adverse impact on our results of operations or financial condition.

For all of our product candidates, we intend to identify and qualify additional manufacturers to provide such API prior to submission of an NDA to the FDA and/or an MAA to the EMA. We are not certain, however, that our single-source suppliers will be able to meet our demand for their products, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers.

Establishing additional or replacement suppliers for the API used in our product candidates, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory inspection or approval, which could result in further delay. While we seek to maintain adequate inventory of the API used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such API from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects.

We may seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, or at all, we may have to alter our development and commercialization plans.

Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate

 

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with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.

We may also be restricted under collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

In addition, any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

Risks Related to Our Intellectual Property

If we are unable to adequately protect our proprietary technology or obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our commercial success will depend in part on our ability to obtain and maintain proprietary or intellectual property protection in the United States and other countries for our product candidates, and our core technologies, including our novel target discovery technology and our proprietary compound library and other

 

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know-how. We seek to protect our proprietary and intellectual property position by, among other methods, filing patent applications in the United States and abroad related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position.

We co-own with D. E. Shaw Research pending United States, PCT, Argentine, and Taiwanese patent applications, which relate to RLY-1971 composition of matter and methods of treatment. We solely own a pending provisional patent application which relates to RLY-1971 solid forms and methods of manufacture. We co-own with D. E. Shaw Research pending unpublished PCT, Argentine, and Taiwanese applications which relate to RLY-4008 composition of matter and methods of treatment. We co-own with D. E. Shaw Research a pending provisional patent application which relates to the composition of matter of and methods of treatment using our PI3K lead series.

Most of the research and development for our programs has been performed under the DESRES Agreement. Under the DESRES Agreement, D. E. Shaw Research controls the rights to its technology (including its supercomputer and software, each of which are important aspects of our Dynamo platform), we control the rights to certain compounds, and we jointly own with D. E. Shaw Research any other work product created by D. E. Shaw Research and us. Subject to certain limits, we have the right to have the following work product assigned to us: the composition of matter, method of use, or method of manufacture of certain compounds directed to a Category 1 Target, as set forth in the DESRES Agreement. For more information regarding the DESRES Agreement, see “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC.” We have not yet designated all of the compounds for which we will have this right of assignment, and thus, we do not yet know the scope of exclusivity we will enjoy under our patent rights for our product candidates.

After any work product is assigned to us, we will have the right to prepare, file, prosecute and maintain patents that cover such assigned work product. We also have the implicit right to defend patents that cover work product owned by us.

To date, much of the work product created under our agreement with D. E. Shaw Research has been created by D. E. Shaw Research and us, together, and is thus co-owned. We have the first right to prepare, file, prosecute, maintain and defend patents that cover work product created by D. E. Shaw Research and us, together. If we choose not to exercise those rights with respect to patents and patent applications that cover joint work product, D. E. Shaw Research will have the right to take over such activities. The party that is preparing, filing, prosecuting and maintaining a patent that covers joint work product also has the right to enforce such patent against infringers.

We do not currently own or in-license any issued patents relating to our platform, our SHP2 program, our FGFR2 program, or our PI3K program We own patent applications relating to our SHP2 program, and RLY-1971 specifically, and a patent application relating to our PI3K program. We also own patent applications that relate to our FGFR2 program, and RLY-4008 specifically. All of these patent applications are co-owned with D. E. Shaw Research.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation.

The degree of patent protection we require to successfully commercialize our product candidates may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our pending patent applications will issue, or that any of our pending patent applications that mature into issued patents will include claims with a scope sufficient to protect RLY-1971, RLY-4008 or our other product candidates. In addition, the laws of foreign

 

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countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products similar or identical to our product candidates, including generic versions of such products.

Other parties have developed technologies that may be related or competitive to our own, and such parties may have filed or may file patent applications, or may have received or may receive patents, claiming inventions that may overlap or conflict with those claimed in our own patent applications, with respect to either the same methods or formulations or the same subject matter, in either case that we may rely upon to dominate our patent position in the market. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights cannot be predicted with any certainty.

In addition, the patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Further, with respect to most of the pending patent applications covering our product candidates, prosecution has yet to commence. Patent prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S. Patent and Trademark Office, or USPTO, have been significantly narrowed by the time they issue, if at all. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

Even if we acquire patent protection that we expect should enable us to maintain such competitive advantage, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party submission of prior art to the USPTO challenging the priority of an invention claimed within one of our patents, which submissions may also be made prior to a patent’s issuance, precluding the granting of any of our pending patent applications. We may become involved in opposition, derivation, reexamination, inter parties review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others from whom we have obtained licenses to such rights.

Competitors may claim that they invented the inventions claimed in our issued patents or patent applications prior to us, or may file patent applications before we do. Competitors may also claim that we are infringing on their patents and that we therefore cannot practice our technology as claimed under our patents, if issued. Competitors may also contest our patents, if issued, by showing the patent examiner that the invention was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents, if issued, are not valid for a number of reasons. If a court agrees, we would lose our rights to those challenged patents.

In addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our patents or patent applications, as a result of the work they performed on our behalf. Although we generally require all of our employees, consultants and advisors and any other third parties who

 

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have access to our proprietary know-how, information or technology to assign or grant similar rights to their inventions to us, we cannot be certain that we have executed such agreements with all parties who may have contributed to our intellectual property, nor can we be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy. With respect to intellectual property arising in the course of our collaboration with D. E. Shaw Research, disagreements between us and D. E. Shaw Research may impact our exclusive control of intellectual property important for protecting our product candidates and proprietary position. A loss of exclusivity, in whole or in part, could allow others to compete with us and harm our business.

An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, without payment to us, or could limit the duration of the patent protection covering our technology and product candidates. Such challenges may also result in our inability to manufacture or commercialize our product candidates without infringing third party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if they are unchallenged, our patent portfolio may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. For example, a third party may develop a competitive product that provides benefits similar to one or more of our product candidates but that has a different composition that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our product candidates, which would have a material adverse effect on our business.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.

In addition to the protection afforded by patents, we rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. With respect to the building of our proprietary compound library, we consider trade secrets and know-how to be our primary intellectual property. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our consultants and employees. We may not be able to prevent the

 

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unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

Our trade secrets could otherwise become known or be independently discovered by our competitors. Competitors could purchase our product candidates and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, our competitive position could be adversely affected, as could our business.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and frequent litigation regarding patents and other intellectual property rights. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference proceedings before the USPTO. Our competitors or other third parties may assert infringement claims against us, alleging that our products or technologies are covered by their patents. Given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. Many companies have filed, and continue to file, patent applications related to SHP2 inhibitors, FGFR2 inhibitors, and PI3K inhibitors. Some of these patent applications have already been allowed or issued, and others may issue in the future. Since these areas are competitive and of strong interest to pharmaceutical and biotechnology companies, there will likely be additional patent applications filed and additional patents granted in the future, as well as additional research and development programs expected in the future. Furthermore, because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture, use or sale of our product candidates, or the practice of our technology. If a patent holder believes our product or product candidate infringes on its patent, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates and technology. We may choose to obtain a license, even in the absence of an action or finding of infringement. In either case, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain such a license, it could be granted on non-exclusive terms, thereby providing our competitors and other third parties access to the same technologies licensed to us. Without such a license, we could be forced, including by court order, to cease developing and commercializing the infringing technology or product candidates. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are

 

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found to have willfully infringed such third-party patent rights. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. If we lose a foreign patent lawsuit, alleging our infringement of a competitor’s patents, we could be prevented from marketing our products in one or more foreign countries, which would have a materially adverse effect on our business.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing our product candidates. In addition, we may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which would have an adverse effect on our business, results of operations and financial condition.

We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors and other third parties may infringe, misappropriate or otherwise violate our patents and other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims. A court may disagree with our allegations, however, and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the third-party technology in question. Further, such third parties could counterclaim that we infringe their intellectual property or that a patent we have asserted against them is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. It is possible that prior art of which we and the patent examiner were unaware during prosecution exists, which could render any patents that may issue invalid. Moreover, it is also possible that prior art may exist that we are aware of but do not believe is relevant to our future patents, should they issue, but that could nevertheless be determined to render our patents invalid.

An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our product candidates, we would lose at least part, and perhaps all, of the patent

 

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protection covering such product candidate. Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

We may not be able to effectively enforce our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our product candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

 

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If we do not obtain patent term extension and data exclusivity for any product candidates we may develop, our business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. Although we believe that licenses to these patents are available from these third parties on commercially reasonable terms, if we were not able to obtain a license, or were not able to obtain a license on commercially reasonable terms, our business could be harmed, possibly materially.

If we fail to comply with our obligations in the agreements under which we collaborate with or license intellectual property rights from third parties, or otherwise experience disruptions to our business relationships with our collaborators or licensors, we could lose rights that are important to our business.

We expect our future license agreements will impose, various development, diligence, commercialization, and other obligations on us in order to maintain the licenses. In spite of our efforts, a future licensor might conclude that we have materially breached our obligations under such license agreements and seek to terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patent rights licensed thereunder fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization of certain of our product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

the sublicensing of patent and other rights under our collaborative development relationships;

 

   

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

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the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

   

the priority of invention of patented technology.

The agreements under which we may license intellectual property or technology from third parties may be complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

These and similar issues may arise with respect to our collaboration agreements, such as our DESRES Agreement. Our collaboration with D. E. Shaw Research is our key computational collaboration, and there can be no assurance that this collaboration will continue past the current term of the DESRES Agreement, on favorable terms or at all, or that at any time while the collaboration is in effect D. E. Shaw Research will provide any particular level of services or that the parties will operate under the agreement without disputes. These disputes may involve ownership or control of intellectual property rights, exclusivity obligations, diligence and payment obligations, for example.

The DESRES Agreement imposes certain exclusivity obligations on us during the term of the agreement with respect to Category 2 targets, and certain exclusivity obligations on DESRES during and after the term of the agreement. While we have some degree of control over how we designate various targets under the DESRES Agreement, D. E. Shaw Research has some degree of control over such designations as well, and our exclusivity obligations limit or delay our ability to conduct research on selected targets with third parties.

Under the DESRES Agreement, D. E. Shaw Research controls the rights to its technology, we control the rights to certain compounds, and we jointly own with D. E. Shaw Research any other work product created by D. E. Shaw Research and us. Any work product we jointly own with D. E. Shaw Research and any other information that we or D. E. Shaw Research share is subject to a non-exclusive cross-license between us and D. E. Shaw Research, subject to certain exceptions. In some instances, D. E. Shaw Research is required to assign to us some of the work product created by D. E. Shaw Research. Disputes may arise between us and D. E. Shaw Research, as well as any future potential collaborators, regarding intellectual property subject to the DESRES Agreement. If disputes over intellectual property that we co-own or we own individually prevent or impair our ability to maintain our current collaboration arrangements on acceptable terms, or undermine our ability to successfully control the intellectual property necessary to protect our product candidates, we may be unable to successfully develop and commercialize the affected product candidates. Uncertainties or disagreements around our rights under any such intellectual property may undermine our ability to partner our programs with third parties.

In addition, the DESRES Agreement is complex and certain provisions may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could be adverse to us, for example by narrowing what we believe to be the scope of our rights to certain intellectual property, or increasing what we believe to be our financial or other obligations under the DESRES Agreement, and any such outcome could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

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Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however, only became effective on March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce rights in our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that we may obtain in the future.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make products that are similar to our product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own;

 

   

we or our licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or own now or in the future;

 

   

we or our licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights;

 

   

it is possible that our present or future pending patent applications (whether owned or licensed) will not lead to issued patents;

 

   

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

 

   

our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

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the patents of others may harm our business; and

 

   

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Government Regulation

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to post-market study requirements, marketing and labeling restrictions, and even recall or market withdrawal if unanticipated safety issues are discovered following approval. In addition, we may be subject to penalties or other enforcement action if we fail to comply with regulatory requirements.

If the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, establishment registration and listing, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing studies, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

   

clinical trial holds

 

   

fines, warning letters or other regulatory enforcement action;

 

   

refusal by the FDA to approve pending applications or supplements to approved applications filed by us;

 

   

product seizure or detention, or refusal to permit the import or export of products; and

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about approved prescription drug products. In particular, while

 

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the FDA permits the dissemination of truthful and non-misleading information about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of regulated products for off-label uses and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct must be changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials, we may be subject to additional privacy restrictions. The collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General Data Protection Regulation, or GDPR. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with our European activities.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In short, the foreign regulatory approval process involves all of the risks associated with FDA approval. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we may intend to charge for our products will also be subject to approval.

 

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If we are unable to successfully validate, develop and obtain regulatory approval for companion diagnostic tests for our product candidates that require or would commercially benefit from such tests, or experience significant delays in doing so, we may not realize the full commercial potential of these product candidates.

In connection with the clinical development of our product candidates for certain indications, we may engage third parties to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our product candidates. Further, the FDA has indicated that if we continue RLY-4008 in a specific biomarker-defined population, a companion diagnostic device will be required to ensure its safe and effective use. Such companion diagnostics would be used during our clinical trials as well as in connection with the commercialization of our product candidates. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we may develop, which we expect will require separate regulatory clearance or approval prior to commercialization.

We intend to rely on third parties for the design, development and manufacture of companion diagnostic tests for our therapeutic product candidates that may require such tests. If we enter into such collaborative agreements, we will be dependent on the sustained cooperation and effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to our therapeutic candidates themselves, including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for these therapeutic product candidates, or experience delays in doing so, the development of these therapeutic product candidates may be adversely affected, these therapeutic product candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutics that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed. In addition, a diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic test that we anticipate using in connection with development and commercialization of our product candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our therapeutic candidates.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

 

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Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities

We may seek priority review designation for one or more of our other product candidates, but we might not receive such designation, and even if we do, such designation may not lead to a faster regulatory review or approval process.

If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all.

 

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We may seek orphan drug designation for certain of our product candidates, and we may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

As part of our business strategy, we may seek orphan drug designation for certain of our product candidates, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population of 200,000 or more in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

Similarly, in Europe, the European Commission, upon the recommendation of the EMA’s Committee for Orphan Medicinal Products, grants orphan drug designation to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe would be sufficient to justify the necessary investment in developing the drug. In Europe, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers.

Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.

Even if we obtain orphan drug exclusivity for a drug, that exclusivity may not effectively protect the drug from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition or if another drug with the same active moiety is determined to be safer, more effective, or represents a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek orphan drug designation for our product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

 

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Breakthrough therapy designation and fast track designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development, regulatory review or approval process, and each designation does not increase the likelihood that any of our product candidates will receive marketing approval in the United States.

We may seek a breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We may seek fast track designation for some of our product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Accelerated approval by the FDA, even if granted for our FGFR2 program or our PI3K program or any other future product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek accelerated approval of our FGFR2 program or our PI3K program and for future product candidates. A product may be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Even if we do receive accelerated approval, we may not experience a faster development or regulatory review or approval process, and receiving accelerated approval does not provide assurance of ultimate FDA approval.

 

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The FDA, the EMA and other regulatory authorities may implement additional regulations or restrictions on the development and commercialization of our product candidates, and such changes can be difficult to predict.

The FDA, the EMA and regulatory authorities in other countries have each expressed interest in further regulating biotechnology products. Agencies at both the federal and state level in the United States, as well as the U.S. Congressional committees and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates. Adverse developments in clinical trials of products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

The U.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our current or future product candidates or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell a product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, (ii) additions or modifications to product labeling, (iii) the recall or discontinuation of our products or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business. In the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (increased pursuant to the Bipartisan Budget Act of 2018, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Since then, the ACA risk adjustment program payment parameters have been updated annually.

Members of the U.S. Congress and the current administration have expressed intent to pass legislation or adopt executive orders to fundamentally change or repeal parts of the ACA. While Congress has not passed repeal legislation to date, the TCJA, repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a federal district court in

 

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Texas ruled the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. The current administration and Centers for Medicare & Medicaid Services, or CMS, have both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. Pending review, the ACA remains in effect, but it is unclear at this time what effect the latest ruling will have on the status of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

Further, on January 20, 2017, an Executive Order was signed directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, an Executive Order was signed terminating the cost-sharing subsidies that reimburse insurers under the ACA. The current administration has concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the ACA have not received necessary appropriations from Congress and announced that it will discontinue these payments immediately until those appropriations are made. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. The loss of the cost share reduction payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Further, on June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay to third-party payors more than $12 billion in ACA risk corridor payments that they argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.

Moreover, on January 22, 2018, a continuing resolution on appropriations for fiscal year 2018 was approved that delayed the implementation of certain ACA-mandated fees, including the so called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices; however on December 20, 2019, the Further Consolidated Appropriations Act (H.R. 1865) was signed into law, which repeals the Cadillac tax, the health insurance provider tax, and the medical device excise tax. It is impossible to determine whether similar taxes could be instated in the future. The Bipartisan Budget Act of 2018, also amended the ACA, effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. In addition, CMS has recently published a final rule that would give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2029 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012 among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

 

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There has been increasing legislative and enforcement interest in the U.S. with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the current administration’s budget for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low income patients. Additionally, the current administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of product candidates paid by consumers. The U.S. Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.

Further, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its product candidates available to eligible patients as a result of the Right to Try Act.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our current or future product candidates or additional pricing pressures. In particular any policy changes through CMS as well as local state Medicaid programs could have a significant impact on our business in light of the higher proportion of SCD patients that utilize Medicare and Medicaid programs to pay for treatments.

Our revenue prospects could be affected by changes in healthcare spending and policy in the U.S. and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant revisions to the ACA. The continuing efforts of the government, insurance companies, managed care

 

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organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

   

the demand for our current or future product candidates, if we obtain regulatory approval;

 

   

our ability to set a price that we believe is fair for our products;

 

   

our ability to obtain coverage and reimbursement approval for a product;

 

   

our ability to generate revenue and achieve or maintain profitability;

 

   

the level of taxes that we are required to pay; and

 

   

the availability of capital.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Although we do not currently have any products on the market, once we begin commercializing our product candidates, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal civil and criminal false claims and civil monetary penalties laws, including the federal False Claims Act, or FCA, imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false of fraudulent claim for purposes of the False Claims Act;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies

 

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that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests of such physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, impose obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and

 

   

analogous state laws and regulations, such as state anti-kickback and false claims laws may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. Further, many state laws governing the privacy and security of health information in certain circumstances, differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were to be found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Risks Relating to Employee Matters and Managing Growth

Our future success depends on our ability to retain key executives and experienced scientists and to attract, retain and motivate qualified personnel.

We are highly dependent on the research and development, clinical and business development expertise of Sanjiv K. Patel, our President and Chief Executive Officer, Don Bergstrom, our Executive Vice President, Head of Research and Development, Brian Adams, our General Counsel, Andy Porter, our Executive Vice President, Chief People Experience Officer, Tom Catinazzo, our Vice President, Head of Finance and Ben Wolf, our Chief Medical Officer as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment letter agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

 

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Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees, including temporary loss due to illness, could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.

In particular, we have experienced a very competitive hiring environment in Cambridge, Massachusetts, where we are headquartered. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success with which we can discover and develop product candidates and our business will be limited.

Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and other regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt, prior to the completion of this offering, a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

 

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We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of April 30, 2020, we had 122 full-time employees. We expect to experience significant growth in the number of our employees and the scope of our operations, particularly as we function as a public company and in the areas of product development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new products in the biopharmaceutical and related industries is highly competitive. We compete in the segments of the pharmaceutical, biotechnology, and other related markets that address computationally focused structure-based drug design in cancer and genetic diseases. There are other companies focusing on structure-based drug design to develop therapies in the fields of cancer and other diseases. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. These companies include divisions of large pharmaceutical companies and biotechnology companies of various sizes. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Any product candidates that we successfully develop and commercialize will compete with currently approved therapies and new therapies that may become available in the future from segments of the pharmaceutical, biotechnology and other related markets that pursue precision medicines. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products. We believe principal competitive factors to our business include, among other things, the accuracy of our computations and predictions, ability to integrate experimental and computational capabilities, ability to successfully transition research programs into clinical development, ability to raise capital, and the scalability of the platform, pipeline, and business.

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testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, we cannot predict whether our current competitive advantages, such as our ability to leverage our Dynamo platform and our relationship with D. E. Shaw Research, will remain in place in the future. If these or other barriers to entry do not remain in place, other companies may be able to more directly or effectively compete with us.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we or our collaborators may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.

Risks Related to Our Common Stock and This Offering

We are an “emerging growth company” as defined in the JOBS Act and a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

providing only two years of audited financial statements in addition to any required unaudited interim financial statements and a correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company.

 

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We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have provided only two years of audited financial statements and have not included all of the executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

Although we are still evaluating the JOBS Act, we currently intend to take advantage of some, but not all, of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company” and “smaller reporting company.” We have elected to avail ourselves of this exemption and, therefore, we are not subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or smaller reporting company. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations. In addition, our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that material weaknesses or significant deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as a “smaller reporting company” or an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

   

the success of competitive products or technologies;

 

   

results of clinical trials of our product candidates or those of our competitors;

 

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regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of our product candidates or clinical development programs;

 

   

the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;

 

   

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

   

variations in our financial results or those of companies that are perceived to be similar to us;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common stock could decline. Based upon the number of shares of common stock, on an as-converted basis, outstanding as of March 31, 2020, upon the completion of this offering, we will have outstanding a total of                shares of common stock, including 1,611,810 shares of non-vested restricted common stock, and assuming no exercise of the underwriters’ option to purchase additional shares. Of these shares, as of the date of this prospectus, approximately                shares of our common stock, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering, assuming that current stockholders do not purchase shares in this offering. The representatives of the underwriters, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis, outstanding as of March 31, 2020, up to an additional                shares of common stock will be eligible for sale in the public market,                % of which shares are held by directors, executive officers and other affiliates and will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

Upon completion of this offering,                shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

After this offering, the holders of approximately                shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the market our common stock.

 

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An active trading market for our common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our common stock. Although we anticipate that our common stock will be approved for listing on The Nasdaq Global Select Market, or Nasdaq, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell.

Our executive officers, directors, principal stockholders and their affiliates will continue to exercise significant control over our company after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.

Immediately following the completion of this offering, and disregarding any shares of common stock that they purchase in this offering, the existing holdings of our executive officers, directors, principal stockholders and their affiliates, including entities affiliated with SoftBank Vision Fund and Third Rock Ventures, will represent beneficial ownership, in the aggregate, of approximately    % of our outstanding common stock, assuming no exercise of the underwriters’ option to acquire additional common stock in this offering and assuming we issue the number of shares of common stock as set forth on the cover page of this prospectus. As a result, these stockholders, if they act together, will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their shares of common stock for substantially less than the price of the shares of common stock being acquired in this offering, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering and the concentration of voting power among these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:

 

   

delaying, deferring or preventing a change of control of us;

 

   

impeding a merger, consolidation, takeover or other business combination involving us; or

 

   

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

See “Principal Stockholders” in this prospectus for more information regarding the ownership of our outstanding common stock by our executive officers, directors, principal stockholders and their affiliates.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. Assuming an initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, purchasers of common stock in this offering will experience immediate dilution of $                per share in net tangible book value of the common stock. In addition, investors purchasing common stock in this offering will contribute    % of the total amount invested by stockholders since inception but will only own    % of the shares of common stock outstanding. In the past, we issued options and other securities to acquire common stock at prices significantly below the initial public offering price. To the extent these outstanding securities are ultimately exercised, investors purchasing common stock in this offering will sustain further dilution. See “Dilution” for a more detailed description of the dilution to new investors in the offering.

 

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We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering to fund discovery and clinical development efforts as well as further expansion of our manufacturing platform and capabilities, and infrastructure to support our pipeline, and to fund new and ongoing research activities, working capital and other general corporate purposes, which may include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the IRC, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in the ownership of its equity over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of this offering or subsequent shifts in our stock ownership, some of which are outside the Company’s control. As of December 31, 2019, we had federal net operating loss carryforwards of approximately $154.3 million, and our ability to utilize those net operating loss carryforwards could be limited by an “ownership change” as described above, which could result in increased tax liability to the Company.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

On December 22, 2017, the Tax Cuts and Jobs Act, or TCJA, was signed into law, which significantly reformed the IRC. The TCJA, among other things, contains significant changes to corporate and individual taxation, some of which could adversely impact an investment in our common stock. You are urged to consult your tax adviser regarding the implications of the TCJA on an investment in our common stock.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the Securities and Exchange Commission and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

 

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Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In additional, if we are not able to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Our fourth amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective at or prior to the completion of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

 

   

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

 

   

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

 

   

a requirement that special meetings of the stockholders may be called only by the board of directors acting pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, and special meetings of stockholders may not be called by any other person or persons;

 

   

advance notice requirements for stockholder proposals and nominations for election to our board of directors;

 

   

a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds (2/3) of all outstanding shares of our voting stock then entitled to vote in the election of directors;

 

   

a requirement of approval of not less than a majority of all outstanding shares of our voting stock to amend any bylaws by stockholder action and not less than two-thirds (2/3) of all outstanding shares of our voting stock to amend specific provisions of our fourth amended and restated certificate of incorporation; and

 

   

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval, which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning

 

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15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our fourth amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Our amended and restated bylaws designate specific courts as the exclusive forum for certain litigation that may be initiated by the Combined Company’s stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any state law claims for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of or based on a breach of a fiduciary duty owed by any director, officer or other employee of ours to us or our stockholders; (3) any action asserting a claim pursuant to any provision of the Delaware General Corporation Law, our fourth amended and restated certificate of incorporation or our amended and restated bylaws; or (4) any action asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Massachusetts shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

We recognize that the Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the

 

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Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock may be volatile. The stock market in general, and Nasdaq and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

   

the initiation, timing, progress, results, and cost of our research and development programs and our current and future preclinical and clinical studies, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

 

   

our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop product candidates, including by applying learnings from one program to other programs and from one modality to our other modalities;

 

   

our ability and the potential to successfully manufacture our drug substances, delivery vehicles, and product candidates for preclinical use, for clinical trials and on a larger scale for commercial use, if approved;

 

   

the ability and willingness of our third-party strategic collaborators to continue research and development activities relating to our development candidates and product candidates;

 

   

our ability to obtain funding for our operations necessary to complete further development and commercialization of our product candidates;

 

   

our ability to obtain and maintain regulatory approval of our product candidates;

 

   

our ability to commercialize our products, if approved;

 

   

the pricing and reimbursement of our product candidates, if approved;

 

   

the implementation of our business model, and strategic plans for our business, product candidates, and technology;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

   

estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;

 

   

the potential benefits of strategic collaboration agreements, our ability to enter into strategic collaborations or arrangements, and our ability to attract collaborators with development, regulatory and commercialization expertise;

 

   

future agreements with third parties in connection with the commercialization of product candidates and any other approved product;

 

   

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

 

   

our financial performance;

 

   

the rate and degree of market acceptance of our product candidates;

 

   

regulatory developments in the United States and foreign countries;

 

   

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

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our ability to produce our products or product candidates with advantages in turnaround times or manufacturing cost;

 

   

the success of competing therapies that are or may become available;

 

   

our ability to attract and retain key scientific or management personnel;

 

   

the impact of laws and regulations;

 

   

our use of the proceeds from this offering;

 

   

developments relating to our competitors and our industry;

 

   

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; and

 

   

other risks and uncertainties, including those listed under the caption “Risk Factors.”

In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe that these sources are reliable; however, we have not independently verified the information contained in such publications.

 

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $                million, or $                million if the underwriters exercise in full their option to purchase additional shares, assuming an initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A 1.0 million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $                million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. This information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing.

We currently expect to use our net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, as follows:

 

   

approximately $                 to $                 to fund the remainder of our Phase 1 and Phase 1b exploratory trials for RLY-1971 and a portion of our confirmatory Phase 2/3 trials;

 

   

approximately $                 to $                 to fund our Phase 1 exploratory trial for RLY-4008 and a portion of our confirmatory Phase 2/3 trials;

 

   

approximately $                 to $                 to identify a lead development candidate and conduct IND-enabling studies for RLY-PI3K1047 and a portion of our Phase 1 and Phase 1b exploratory trials;

 

   

approximately $                 to $                 for the continued development of our discovery programs; and

 

   

the remaining proceeds for general corporate purposes, which may include the hiring of additional personnel, capital expenditures and the costs of operating as a public company.

Our expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above and we expect that we will require additional funds in order to fully accomplish the specified uses of the proceeds of this offering. We may also use a portion of the net proceeds to in-license, acquire, or invest in complementary businesses or technologies to continue to build our pipeline, research and development capabilities and our intellectual property position, although we currently have no agreements, commitments, or understandings with respect to any such transaction.

Due to the many inherent uncertainties in the development of our product candidates, the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our research and development, the timing of patient enrollment and evolving regulatory requirements, the timing and success of preclinical studies, our ongoing clinical study or clinical studies we may commence in the future, the timing of regulatory submissions, any strategic alliances that we may enter into with third parties for our product candidates or strategic opportunities that become available to us, and any unforeseen cash needs.

 

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Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term and long-term interest-bearing instruments, investment-grade securities, and direct or guaranteed obligations of the U.S. government. We cannot predict whether the proceeds invested will yield a favorable return. Our management will retain broad discretion in the application of the net proceeds we receive from our initial public offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to fund the growth and development of our business. We do not intend to pay cash dividends to our stockholders in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents, restricted cash, and investments and our capitalization as of March 31, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our preferred stock into an aggregate of 212,642,857 shares of common stock immediately prior to the completion of this offering, and (ii) the filing and effectiveness of our fourth amended and restated certificate of incorporation upon the closing of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to our sale in this offering of                  shares of common stock at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The following table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock,” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

     As of March 31, 2020  
     Actual     Pro Forma     Pro Forma As
Adjusted(1)
 
     (in thousands, except share and per share data)  

Cash, cash equivalents, restricted cash, and investments

   $ 335,081     $ 335,081     $    
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock (Series A, Series B, and Series C), $0.001 par value; 337,272,859 shares authorized; 212,642,857 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     537,781       —         —    

Stockholders’ (deficit) equity:

      

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

     —         —         —    

Common stock, $0.001 par value; 260,000,000 shares authorized, 17,000,610 shares issued and 15,388,800 shares outstanding, actual; 260,000,000 shares authorized, 229,643,467 shares issued and 228,031,657 shares outstanding, pro forma;                  shares authorized,                  shares issued and outstanding, pro forma as adjusted

     15       228    

Additional paid-in capital

     10,608       548,176    

Accumulated other comprehensive income

     1,394       1,394       1,394  

Accumulated deficit

     (214,368     (214,368     (214,368
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (202,351     335,430    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 335,430     $ 335,430     $    
  

 

 

   

 

 

   

 

 

 

 

(1)

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as

 

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  adjusted amount of cash, cash equivalents, restricted cash and investments, common stock and additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) the pro forma as adjusted amount of cash, cash equivalents, restricted cash and investments common stock and additional paid-in capital, total stockholders’ equity and total capitalization by approximately $                million, assuming an initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The actual, pro forma, and pro forma as adjusted information set forth in the table excludes:

 

   

26,241,028 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2020, at a weighted average exercise price of $1.35 per share;

 

   

3,360,008 shares of common stock reserved for future issuance as of March 31, 2020 under our 2016 Plan, which will cease to be available for issuance at the time that our 2020 Stock Plan becomes effective;

 

   

                 shares of our common stock that will become available for future issuance under our 2020 Stock Plan, which will become effective in connection with the completion of this offering; and

 

   

                 shares of our common stock that will become available for future issuance under our ESPP, which will become effective in connection with the completion of this offering.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible book value (deficit) as of March 31, 2020 was $(202.4) million, or $(11.90) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and preferred stock, which is not included within stockholders’ equity (deficit). Historical net tangible book value (deficit) per share represents our historical net tangible book value (deficit) divided by the 17,000,610 shares of our common stock, which includes 1,611,810 shares of non-vested restricted common stock, as of March 31, 2020.

Our pro forma net tangible book value as of March 31, 2020 was $335.4 million, or $1.46 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 212,642,857 shares of our common stock immediately prior to the completion of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2020, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock immediately prior to the completion of this offering.

After giving further effect to our issuance and sale of                  shares of our common stock in this offering at an assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2020 would have been $     million, or $     per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $                 to existing stockholders and immediate dilution of $                 in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $                

Historical net tangible book value (deficit) per share as of March 31, 2020

   $ (11.90  

Increase per share attributable to the automatic conversion of preferred stock upon the closing of this offering

     13.36    
  

 

 

   

Pro forma net tangible book value per share as of March 31, 2020

     1.46    

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution per share to new investors purchasing shares in this offering

     $    
    

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value by $     million, our pro forma as adjusted net tangible book value per share after this offering by $     and dilution per share to new investors purchasing shares in this offering by $    , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $     and decrease the dilution per share to new

 

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investors participating in this offering by $                , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $     and increase the dilution per share to new investors participating in this offering by $ assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions.

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $     per share, representing an immediate increase in pro forma as adjusted net tangible book value per share of $         to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $     to new investors purchasing common stock in this offering, assuming an initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If any shares are issued upon exercise of outstanding options, you will experience further dilution.

The following table summarizes, on the pro forma as adjusted basis described above, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

     229,643,467        %     $ 521,707        %     $ 2.27  

New investors

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $          100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

A $1.00 increase or decrease in the assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $     million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by      percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by      percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $     million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by      percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by      percentage points, assuming no change in the assumed initial public offering price.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to     % of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors participating in the offering would be increased to     % of the total number of shares of our common stock outstanding after this offering.

The number of shares purchased from us by existing stockholders is based on 17,000,610 shares of our common stock, which includes 1,611,810 shares of non-vested restricted common stock, as of March 31, 2020, after

 

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giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 212,642,857 shares of common stock immediately prior to the completion of this offering, and excludes:

 

   

26,241,028 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2020, at a weighted average exercise price of $1.35 per share;

 

   

3,360,008 shares of common stock reserved for future issuance as of March 31, 2020 under the 2016 Plan, which will cease to be available for issuance at the time that our 2020 Stock Plan becomes effective;

 

   

             shares of our common stock that will become available for future issuance under our 2020 Stock Plan, which will become effective in connection with the completion of this offering; and

 

   

             shares of our common stock that will become available for future issuance under our ESPP, which will become effective in connection with the completion of this offering.

To the extent that outstanding options are exercised or shares are issued under our 2020 Stock Option and Incentive Plan, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following summary financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. We have derived the statement of operations data for the years ended December 31, 2018 and 2019 and the balance sheet data as of December 31, 2018 and 2019 from our audited financial statements appearing at the end of this prospectus. The statement of operations data for the three months ended March 31, 2019 and 2020 and the balance sheet data as of March 31, 2020 have been derived from our unaudited financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2018     2019     2019     2020  
     (in thousands, except share and per share data)  

Statement of Operations Data:

      

Operating expenses:

        

Research and development expenses

   $ 41,034     $ 70,306     $ 13,335     $ 21,700  

General and administrative expenses

     8,855       13,742       3,067       4,758  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     49,889       84,048       16,402       26,458  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (49,889     (84,048     (16,402     (26,458

Other income (expense), net:

        

Interest income

     1,113       8,801       2,277       1,572  

Other expense

     (9     (58     (57     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     1,104       8,743       2,220       1,572  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (48,785   $ (75,305   $ (14,182   $ (24,886
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted(1)

   $ (5.53   $ (6.15   $ (1.29   $ (1.69
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock, basic and diluted

     8,824,617       12,252,452       10,964,458       14,749,780  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(2)

     $ (0.33     $ (0.11
    

 

 

     

 

 

 

Pro forma weighted average shares of common stock, basic and diluted (unaudited)

       224,827,070         227,392,637  
    

 

 

     

 

 

 

 

(1)

See Note 11 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted net loss per share.

 

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(2)

See Note 12 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted pro forma net loss per share.

 

     As of December 31,      As of March 31,  
     2018      2019      2020  
     (in thousands)  

Balance Sheet Data:

        

Cash, cash equivalents, restricted cash and investments

   $ 422,383      $ 356,694      $ 335,081  

Working capital(1)

     417,237        348,550        327,118  

Total assets

     428,611        393,068        370,274  

Convertible preferred stock

     532,120        537,781        537,781  

Total stockholders’ deficit

     (110,927      (180,438      (202,351

 

(1)

We define working capital as current assets less current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” section of this prospectus and our consolidated financial statements and the related notes included at the end of this prospectus. This discussion and other parts of this prospectus 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 prospectus, 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 with an initial focus on enhancing small molecule therapeutic discovery in targeted oncology. Our company is built upon unparalleled insights into protein motion and how this dynamic behavior relates to protein function. We built our Dynamo platform to integrate an array of leading edge experimental and computational approaches, which allows us to apply our understanding of protein structure and motion to drug discovery.

We are advancing our lead product candidates, RLY-1971 and RLY-4008, and a development candidate selection for a PI3Kα selective mutant program (RLY-PI3K1047 program) for the treatment of patients with advanced solid tumors. We initiated a Phase 1 clinical trial for RLY-1971, our inhibitor of Src homology region 2 domain-containing phosphatase-2 (SHP2), in patients with advanced solid tumors in the first quarter of 2020. We have completed Investigational New Drug, or IND, enabling activities for RLY-4008, our inhibitor of fibroblast growth factor receptor 2 (FGFR2) and expect to initiate a Phase 1 clinical trial for RLY-4008 in patients with advanced solid tumors having oncogenic FGFR2 alterations in the second half of 2020. We anticipate the RLY-PI3K1047 program to be in IND-enabling studies in 2021. 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. Across both precision oncology and genetic disease, we have five additional discovery stage programs. 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 May 2015. We have devoted substantially all of our resources to developing our lead product candidates developing our innovative experimental and computational approaches on protein motion platform, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have principally financed our operations through private placements of preferred stock and convertible debt. Through December 31, 2019 and March 31, 2020, we had received gross proceeds of approximately $520 million from sales of our preferred stock and our issuance of convertible debt.

Since it was reported to have surfaced in December 2019, COVID-19 has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

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

 

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continue to enroll our patients in phase 1 of our clinical trials for RLY-1971 and currently do not anticipate any interruptions of 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 $48.8 million and $75.3 million for the years ended December 31, 2018 and 2019, respectively, and $14.2 million and $24.9 million for the three months ended March 31, 2019 and 2020, respectively. As of March 31, 2020, we had an accumulated deficit of $214.4 million. These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment, and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

We anticipate that our expenses will increase substantially if and as we:

 

   

conduct our current and future clinical trials of RLY-1971 and RLY-4008, and pre-clinical research of our RLY-PI3K1047 program;

 

   

initiate and continue research and preclinical and clinical development of our other product candidates;

 

   

utilize our platform to 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;

 

   

establish agreements with contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, in connection with our preclinical studies and clinical trials;

 

   

require the manufacture of larger quantities of our product candidates for clinical development and potentially commercialization;

 

   

maintain, expand and protect our intellectual property portfolio;

 

   

acquire or in-license other drugs and technologies;

 

   

hire and retain additional clinical, quality control and scientific personnel; and

 

   

commence operating as a public company, which will require us to add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to a public company.

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.

 

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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 be forced to reduce or terminate our operations.

As of March 31, 2020, we had cash, cash equivalents and investments of $334.2 million. We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements through at least                 . We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Components of our Results of Operations

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 CROs, CMOs, and other vendors that conduct our clinical trials and preclinical activities;

 

   

costs of acquiring, developing, and manufacturing clinical trial materials and lab supplies;

 

   

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 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 or accrued research and development expenses.

 

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We began tracking external development costs by program on January 1, 2020 for programs that have entered clinical trials. We do not allocate internal costs, facilities costs, or other overhead costs to specific programs. The following summarizes our costs by program based on their status in development:

 

     Three Months Ended
March 31,
2020
 

External costs for program in Phase 1 clinical trials

   $ 1,030  

External costs for all programs in discovery and pre-clinical studies

     11,396  

External costs for platform research and other research and development activities

     3,046  

Employee related expenses

     6,228  
  

 

 

 

Total research and development expenses

   $ 21,700  
  

 

 

 

Our most advanced development program RLY-1971 is in Phase 1 clinical trials. Programs in discovery and pre-clinical are RLY-4008 and RLY-P13K1047 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 Phase 1 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 of RLY-1971 and future development costs of RLY-4008 and our RLY-P13K1047 program, if, when or to what extent we will generate revenue from the commercialization and sale of any 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-1971 and RLY-4008, and our RLY-PI3K1047 program 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 similar public health crisis;

 

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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-1971 and continued development of RLY-4008 our RLY-PI3K1047 program and continue 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 U.S. Food and Drug Administration, or 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.

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 and 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 Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

Other Income, Net

Other income, net consists of interest income primarily interest earned on our cash, cash equivalents and investments. We anticipate that our interest income will increase in the future as we expect our investment balances to be higher due to anticipated cash proceeds from this offering.

Income Taxes

Since our inception in 2015, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2019, we had federal NOL carryforwards of $154.3 million available to reduce taxable income, of which $43.2 million expire beginning in 2035 and $111.1 million do not expire. We have state NOL carryforwards of $162.2 million as of December 31, 2019 available to reduce future state taxable income, which expire at various dates beginning in 2035.

 

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As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $4.8 million and $1.9 million, respectively, which begin to expire in 2035 and 2030, respectively.

Results of Operations

Comparison of the three months ended March 31, 2019 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2020:

 

     Three Months Ended
March 31,
     Change
 
     2019      2020  
     (in thousands)  

Operating expenses:

        

Research and development

   $ 13,335      $ 21,700      $ 8,365  

General and administrative

     3,067        4,758        1,691  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     16,402        26,458        10,056  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (16,402      (26,458      10,056  

Other income, net

     2,220        1,572        (648
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (14,182    $ (24,886    $ 10,704  
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses

 

     Three Months Ended
March 31,
     Change  
     2019      2020  
     (in thousands)  

Employee related expenses

   $ 4,342      $ 6,228      $ 1,886  

Outside and consulting services

     5,933        10,291        4,358  

Clinical trial expenses

     —          1,030        1,030  

Depreciation

     572        713        141  

Laboratory supplies and other costs

     1,282        2,017        735  

Facilities and other allocated expenses

     1,206        1,421        215  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 13,335      $ 21,700      $ 8,365  
  

 

 

    

 

 

    

 

 

 

Research and development expenses were $13.3 million for the three months ended March 31, 2019, compared to $21.7 million for the three months ended March 31, 2020. The increase of $8.4 million was primarily due to $4.4 million of outside and consulting services for our pre-clinical candidates due to an increased number of discovery programs and more programs in later stage pre-clinical trials. The increase also includes $1.9 million of additional employee related costs, including stock-based compensation of $0.3 million and $0.7 million for increased laboratory supplies primarily due to higher headcount, as well as $1.0 million of clinical trial expenses as we commenced phase 1 of our clinical study for RLY-1971 during the three months ended March 31, 2020. While we currently do not anticipate any interruptions in our operations due to COVID-19, it is possible that the COVID-19 pandemic and response efforts could delay our development programs and plans and increase our associated costs.

General and Administrative Expenses

General and administrative expenses were $3.1 million for the three months ended March 31, 2019, compared to $4.8 million for the three months ended March 31, 2020. The increase of $1.7 million was due to $0.8 million of increased personnel costs, including an additional $0.3 million of share-based compensation, to support our infrastructure, $0.4 million of additional professional fees and $0.5 million of increased facilities related and other expenses primarily attributed to our new corporate and laboratory space in 2019.

 

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Other Income, Net

Other income, net, decreased from $2.2 million for the three months ended March 31, 2019 to $1.6 million for the three months ended March 31, 2020 due primarily to lower amounts of cash equivalents and investments as well as a decrease in interest.

Comparison of years ended December 31, 2018 and 2019

The following table summarizes our results of operations for the years ended December 31, 2018 and 2019:

 

     Year Ended
December 31,
     Change  
     2018      2019  
     (in thousands)  

Operating expenses:

        

Research and development

   $ 41,034      $ 70,306      $ 29,272  

General and administrative

     8,855        13,742        4,887  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     49,889        84,048        34,159  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (49,889      (84,048      (34,159

Interest income and other expense

     1,104        8,743        7,639  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (48,785    $ (75,305    $ (26,520
  

 

 

    

 

 

    

 

 

 

Research and Development Expenses

 

     Year Ended
December 31,
     Change  
     2018      2019  
     (in thousands)  

Employee related expenses

   $ 11,829      $ 19,914      $ 8,085  

Outside and consulting services

     21,753        34,585        12,832  

Depreciation of laboratory equipment

     1,705        2,410        705  

Laboratory supplies and other costs

     3,881        7,289        3,408  

Facilities and other allocated expenses

     1,866        6,108        4,242  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 41,034      $ 70,306      $ 29,272  
  

 

 

    

 

 

    

 

 

 

Research and development expenses were $41.0 million for the year ended December 31, 2018, compared to $70.3 million for the year ended December 31, 2019. The increase of $29.3 million was primarily due to an increase of $12.8 million in outside and consulting research expenses associated with our pre-clinical candidates, $8.1 million of increased personnel related costs, primarily due to increased headcount, including $0.8 million of additional stock-based compensation, $4.2 million of increased facilities related and other expenses primarily attributable to our new corporate and laboratory space in 2019 and $3.4 million of laboratory supplies and other costs.

General and Administrative Expenses

General and administrative expenses were $8.9 million for the year ended December 31, 2018 compared to $13.7 million for the year ended December 31, 2019. The increase of $4.9 million was primarily due to $2.7 million in increased personnel related costs, including $0.7 million of additional share-based compensation expense, primarily due to increased general and administrative headcount to support the growth of our research and development organization, $1.1 million in increased professional fees, which were primarily legal and outside consultant costs, and $1.0 million in increased facilities related and other expenses attributed to our new corporate and laboratory space in 2019.

 

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Other Income (Expense), Net

Other income, net, increased from $1.1 million for the year ended December 31, 2018 to $8.8 million for the year ended December 31, 2019 due primarily to interest income generated from proceeds from the issuance of Series C convertible preferred stock in December 2018 and in January 2019.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales or any other sources, 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 date, we have financed our operations through private placements of preferred stock and convertible debt. Through March 31, 2020, we had received gross proceeds of $519.8 million from sales of our preferred stock and our issuance of convertible debt. As of March 31, 2020, we had cash, cash equivalents and investments of $334.2 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2018     2019     2019     2020  
     (in thousands)  

Cash used in operating activities

   $ (44,135   $ (66,133   $ (10,816   $ (22,334

Cash provided by (used in) investing activities

     (1,680     (319,024     (3,144     50,371  

Cash provided by financing activities

     394,972       5,606       5,047       351  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 349,157     $ (379,551   $ (8,913   $ 28,388  

Operating Activities.

During the three months ended March 31, 2020, operating activities used $22.3 million of cash, primarily resulting from our net loss of $24.9 million, partially offset by non-cash charges of $2.0 million and cash provided by changes in our operating assets and liabilities of $0.6 million. Net cash provided by changes in our operating assets and liabilities of $0.6 million during the three months ended March 31, 2020 consisted of an increase of $0.2 million in accounts payable, accrued expenses and other liabilities as well as a decrease of $0.3 million in prepaid expenses and other current assets, and $0.1 million of operating lease assets, net. The increase in accounts payable, accrued expenses and other current liabilities was largely due to the timing of payments related to research and development costs.

During the three months ended March 31, 2019, operating activities used $10.8 million of cash, primarily resulting from our net loss of $14.2 million, partially offset by non-cash charges of $1.5 million and cash provided by changes in our operating assets and liabilities of $1.9 million. Net cash provided by changes in our operating assets and liabilities of $1.9 million during the three months ended March 31, 2019 consisted of an increase of $1.5 million in accounts payable, accrued expenses and other liabilities as well as a decrease of $0.6 million of operating lease assets, net, partially offset by an increase of $0.2 million in prepaid expenses and other current assets. The increase in accounts payable, accrued expenses and other liabilities was largely due to an increase in external research and development costs. The increase in prepaid expenses and other current assets was due to an increase in external research and development costs.

During the year ended December 31, 2019, operating activities used $66.1 million of cash, primarily resulting from our net loss of $75.3 million, partially offset by non-cash charges of $4.9 million and cash provided by changes in our operating assets and liabilities of $4.3 million. Net cash provided by changes in our operating

 

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assets and liabilities of $4.3 million during the year ended December 31, 2019 consisted of an increase of $5.2 million in accounts payable, accrued expense and other current liabilities as well as a decrease of $1.2 million of operating lease assets, net, partially offset by an increase of $2.1 million in prepaid expenses and other current assets. The increase in accounts payable, accrued expenses and other current liabilities was largely due to an increase in external research and development costs. The increase in prepaid expenses and other current assets was due to an increase in external research and development costs.

During the year ended December 31, 2018, operating activities used $44.1 million of cash, primarily resulting from our net loss of $48.8 million and $0.4 million of cash used from changes in our operating assets, partially offset by non-cash charges of $5.1 million. Net cash used from changes in operating assets and liabilities of $0.4 million during the year ended December 31, 2018 consisted of an increase in prepaid expenses and other current assets of $1.2 million and an increase in operating leases assets, net, of $0.5 million, partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $1.3 million. The increase in prepaid expenses and other current assets was due to an increase in external research and development costs. The increase in accounts payable, accrued expenses and other current liabilities was largely due to an increase in external research and development costs and to a lesser extent an increase in professional fees associated with the Series C convertible preferred stock financing in December 2018.

Investing Activities.

During the three months ended March 31, 2020, investing activities provided $50.4 million, consisting of $51.4 million of net investment maturities, partially offset by $1.0 million for the acquisition of property and equipment.

During the three months ended March 31, 2019, investing activities used $3.1 million, consisting of purchase of property and equipment.

During the year ended December 31, 2019, investing activities used $319.0 million, consisting primarily of $311.0 million of net investment purchases and $8.0 million for the purchase of property and equipment.

During the year ended December 31, 2018, investing activities used $1.7 million of cash, consisting primarily of purchases of property and equipment.

Financing Activities.

During the three months ended March 31, 2020, net cash provided by financing activities was $0.4 million, consisting primarily of net proceeds from the exercise of stock options.

During the three months ended March 31, 2019, net cash provided by financing activities was $5.0 million, consisting of net proceeds from our sales of Series C convertible preferred stock.

During the year ended December 31, 2019, net cash provided by financing activities was $5.6 million, consisting of net proceeds from our sales of Series C convertible preferred stock of $5.0 million and proceeds from the exercise of stock options of $0.6 million.

During the year ended December 31, 2018, net cash provided by financing activities was $395.0 million, consisting primarily of net proceeds from our sales of Series C convertible preferred stock of $394.3 million and proceeds from the issuance of restricted stock of $0.7 million, net of repurchases.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to RLY-1971, which is still in the early stages of clinical trials, the potential clinical development

 

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activities of RLY-4008 and the ongoing pre-clinical development activities of our RLY-PI3K1047 program. In addition, commencing upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. We expect that our expenses will increase substantially if and as we:

 

   

conduct our current and future clinical trials of RLY-1971 and RLY-4008, and additional preclinical research and development of our RLY-PI3K1047 program, 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, quality control 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 transition to a public company.

As of March 31, 2020, we had cash, cash equivalents and investments of $334.2 million. We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements through at least                 . We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with the development of RLY-1971, RLY-4008, and our RLY-PI3K1047 programs and other product candidates and programs and because the extent to which we may enter into collaborations with third parties for 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-1971 and RLY-4008 and additional preclinical research of our RLY-PI3K1047 program;

 

   

the scope, progress, results and costs of our current and future clinical trials of RLY-1971 and additional preclinical research of RLY-4008 and RLY-PI3K1047;

 

   

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;

 

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our ability to establish and maintain collaborations on favorable terms, if at all;

 

   

the success of any 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, although we currently have no commitments or agreements to complete any such transactions;

 

   

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 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.

 

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations at December 31, 2019, and the effect that such obligations are expected to have on our liquidity and cash flows in future periods:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 - 3
Years
     3 - 5
Years
     More Than
5 Years
 
     (in thousands)  

Operating lease commitments(1)

   $ 39,685      $ 3,767      $ 7,862      $ 8,323      $ 19,733  

Research and license agreement obligations(2)}

     3,800        1,800        2,000        —          —    

Letter of credit

     878        —          —          —          878  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44,363      $ 5,567      $ 9,862      $ 8,323      $ 20,611  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents minimum payments due for our lease of office and laboratory space in Cambridge, Massachusetts under an operating lease agreement that expires in April 2029.

(2)

Represents the aggregate license maintenance fees payable under our existing research and licensing agreements with third parties.

We have an Amended and Restated Collaboration and License Agreement with D. E. Shaw Research, LLC, or the DESRES Agreement, which provides that the parties will jointly conduct research efforts with the goal of identifying and developing product candidates. On a product-by-product basis, we have agreed to pay D. E. Shaw Research milestone payments upon the achievement of certain development and regulatory milestone events for products we develop under the DESRES Agreement that are directed to a Category 1 Target or any target that was a Category 1 Target. Such payments for achievement of development and regulatory milestones total up to $7.25 million in the aggregate for each of the first three products we develop, and up to $6.25 million in the aggregate for each product we develop after the first three. In addition, we are obligated to pay D. E. Shaw Research, LLC royalty payments as defined in the agreement.

We also have certain research and license arrangements with other third parties, which provide us with research services with the goal of identifying and developing product candidates until all payment obligations by the Company to the third party have expired. The Company has the right to terminate these agreements with a reasonable period of notice. We are also obligated to pay development milestone payments for up to four targets, each in the range of $4.0 million to $7.0 million, upon the achievement of certain specified contingent events. The Company assessed the milestones at December 31, 2018 and 2019 and March 31, 2020 (unaudited) and concluded no such milestone payments were due.

We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice of 30 days and, as a result, are not included in the table of contractual obligations above. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

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 United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

 

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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.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development and manufacturing expenses. This process involves reviewing open contract and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:

 

   

CROs in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;

 

   

investigative sites or other service providers in connection with clinical trials;

 

   

vendors in connection with preclinical and clinical development activities; and

 

   

vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract, which may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees, directors and non-employees based on their fair value on the date of grant and recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize the impact

 

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of forfeitures on stock-based compensation expense as forfeitures occur. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions. For awards with performance-based vesting conditions, we assess the probability that the performance conditions will be achieved at each reporting period. We use the accelerated attribution method to expense the awards over the requisite service period when the performance conditions are deemed probable of achievement.

We have certain options with performance-based vesting conditions whereby the service inception date precedes the accounting grant date and therefore we apply variable accounting such that the stock-based compensation expense to be recognized for the options will ultimately be based on the fair value of the awards on the accounting grant date. Expense is recognized over the implied service period when achievement of the performance based milestones is deemed probable. We use judgement to determine whether and, if so, how many awards are deemed probable of vesting at each reporting period.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Determination of Fair Value of Common Stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors, or compensation committee thereof as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Historically, these independent third party valuations of our equity instruments were performed contemporaneously with identified value inflection points.

These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation or the Practice Aid. The Practice Aid identifies various available methods for allocating the enterprise value across classes of series of capital stock in determining the fair value of our common stock at each valuation date.

In accordance with the Practice Aid, the probability-weighed expected return method, or PWERM and the Option Pricing Method or OPM were the most appropriate methods for determining the fair value of our common stock based on our stage of development and other relevant factors. Our valuation as of May 2020 contemplated the hybrid method which is a combination of the PWERM and the OPM to allocate the value to the securities. Our valuations in November 2018 and November 2019 were based on the OPM utilizing either the Recent Transactions Method utilizing a Backsolve methodology or Guideline Merger and Acquisition Transaction Method from the Practice Aid.

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

 

   

The prices of our convertible preferred stock sold to or exchanged between outside investors in arm’s length transactions and the rights, preferences, and privileges or our redeemable preferred securities as compared to those of our common stock, including liquidation preferences of our preferred stock;

 

   

the progress of our research and development programs, including the status and results of preclinical studies and clinical trials for our product candidates

 

   

our stage of development and commercialization of our product candidates and our business strategy;

 

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external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;

 

   

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

   

the lack of an active public market for our common stock and our preferred stock;

 

   

the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and

 

   

the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

Our valuations were performed using the OPM or hybrid method. The method selected was based on availability and the quality of information to develop the assumptions for the methodology.

OPM – The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value on if the funds available for distribution to stockholders exceed the value of the liquidation preferences at the time of a liquidity event, such as a strategic sale or merger. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock liquidation preference is paid. The OPM uses the Black-Scholes option pricing model to price the call options. This model defines the fair value of securities as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities. The OPM method was used for our November 2018 and November 2019 valuations.

PWERM – Under the PWERM methodology, the fair value of the common stock is estimated based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk adjusted discount rate and probability to arrive at an indication of the value for common stock.

Hybrid Method – The Hybrid method is a PWERM where the equity value in one of the scenarios is calculated using an OPM. In the hybrid method used by us for our May 2020 valuation, two types of future event scenarios were considered: an IPO and a trade sale. The enterprise value for the IPO scenario was determined using a market approach, the Guideline IPO Transactions Method. The IPO scenario assumes all of our then outstanding preferred stock would convert into common stock as of the IPO effective date. The enterprise value for the Trade Sale scenario is determined based on the Guideline Merger and Acquisitions Transaction Method and OPM allocation method. The relative probability of each type of future-event scenario was determined by our board of directors based on an analysis of performance and market conditions at the time, including then current IPO valuations of similarly situated companies and expectations as to the timing and likely prospects of future event scenarios.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

 

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Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

 

Grant date

   Number of
shares subject
to option

grants
     Per share
exercise

price of
options
     Fair value of
common stock
per share on

date of
option grant
 

March 15, 2019 – November 18, 2019

     10,380,215      $ 1.42      $ 1.42  

December 2, 2019 – May 11, 2020

     1,830,500        1.47        1.47  

March 2, 2020

     6,961,747        1.47        (1

June 23, 2020

     670,000        3.96        3.96  

 

(1)

Represents options to purchase 6,961,747 shares of common stock at a per share exercise price of $1.47, which were authorized on March 2, 2020, for which the commencement of vesting is based on the achievement of certain scientific and operational milestones during a two-year period. The achievement of these milestones is discretionary and subject to approval by our board of directors. As a result, the grant date for accounting purposes will not be determined until the board of directors approves the achievement of the specified milestones. The Company will therefore apply variable accounting for these awards and the stock-based compensation expense to be recognized for the options will ultimately be based on the fair value of the awards on the accounting grant date. The Company determined that the awards were not probable of vesting at March 31, 2020, and therefore no stock-based compensation expense was recorded in the three months ended March 31, 2020.

On June 23, 2020, the Company’s board of directors, in its discretion, determined that the performance milestones related to 25% of the performance-based awards, as discussed above, had been achieved. The four year vesting term of awards to purchase 1,740,436 shares of common stock therefore commenced on June 23, 2020.

Emerging growth company and smaller reporting company status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue

 

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to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

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 Securities and Exchange Commission.

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 consolidated financial statements appearing at the end of this prospectus.

Quantitative and Qualitative Disclosures about Market Risks

Interest rate risk

We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and short-term investments. As of March 31, 2020, our cash equivalents consisted of money market funds. As of December 31, 2020, our investments consisted of investments in U.S Treasury Bills, United States Treasury Bonds, and agency bonds that have contractual maturities of less than one year. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The fair value of our marketable securities is subject to change as a result of potential changes in market interest rates, including changes resulting from the impact of the COVID-19 pandemic. The potential change in fair value for interest rate sensitive instruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities. As of March 31, 2020 and December 31, 2019, we estimate that such hypothetical 100 basis point adverse movement would not result in a material impact on our consolidated results of operations.

As of March 31, 2020, we had no debt outstanding and are therefore not exposed to interest rate risk with respect to debt.

Foreign currency exchange risk

All of our employees and our operations are currently located in the United States and our expenses are generally denominated in U.S. dollars. However, we have entered into a limited number of contracts with vendors for research and development services that permit us to satisfy our payment obligations in U.S. dollars (at prevailing exchange rates) but have underlying payment obligations denominated in foreign currencies, including the Euro. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our financial results for the years ended December 31, 2019 and 2018 and the three months ended March 31, 2019 and 2020.

 

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BUSINESS

Overview

We are a clinical-stage precision medicines company transforming the drug discovery process with an initial focus on enhancing small molecule therapeutic discovery in targeted oncology. Our company is built upon unparalleled insights into protein motion and how this dynamic behavior relates to protein function. These insights may enable us to more effectively drug protein targets that previously have been intractable (i.e. inadequately drugged or undruggable). We believe we have a differentiated approach to drug these protein targets based on their motion, which enables us to select and advance unique product candidates. We built our Dynamo platform to integrate an array of leading edge experimental and computational approaches, which allows us to apply our understanding of protein structure and motion to drug discovery.

We are advancing a pipeline of medicines to address targets in precision oncology, including our lead product candidates, RLY-1971 and RLY-4008, as well as our PI3Kα mutant selective program (RLY-PI3K1047 program). To date, we have not entered into partnerships to clinically develop or commercialize any of these programs. We initiated a Phase 1 clinical trial for RLY-1971, our inhibitor of Src homology region 2 domain-containing phosphatase-2 (SHP2), in patients with advanced solid tumors in the first quarter of 2020. We have completed Investigational New Drug, or IND, enabling activities for RLY-4008, our inhibitor of fibroblast growth factor receptor 2 (FGFR2) and expect to initiate a Phase 1 clinical trial for RLY-4008 in patients with advanced solid tumors having oncogenic FGFR2 alterations in the second half of 2020. We anticipate the RLY-PI3K1047 program, our program for molecules targeting cancer-associated mutant variants of phosphoinostide 3-kinase alpha (PI3Kα), to be in IND enabling studies in 2021. 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. In addition to the three product candidates described above, we have five discovery stage programs across 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.

Precision medicine emerged as an approach for disease treatment as the understanding of the link between genetic alterations, protein dysfunction and diseases evolved. Precision medicine aims to specifically and potently drug genetically validated target proteins (i.e., genetic variants potentially implicated in biology of disease). However, some target proteins thus far have been intractable using conventional drug discovery tools, such as structure-based drug design (SBDD). While SBDD is well-suited to solving some drug discovery problems such as orthosteric site kinase inhibitors, its reliance on static images of protein fragments limits its ability to gain accurate insights into the dynamic behavior of proteins in their natural state, which in turn limits its ability to discover medicines with exquisite specificity. Our approach pivots the understanding of protein targets from the industry-standard, static view, to a novel paradigm based on fundamental insights into protein motion. We then apply these novel insights into protein motion to drug discovery and design, which we term Motion Based Drug Design (MBDD).

The confluence of three forces - the proliferation of readily available genomic data, the evolution of experimental techniques, and advancements in computational power and speed - led to the founding of Relay Therapeutics. We believe we are uniquely situated in our ability to consolidate these advances and, when combined with our world-class team of both experimental and computational experts, integrate these solutions into MBDD to create medicines that will make a transformative difference for patients.

Key drug discovery steps of Our Dynamo Platform

Our Dynamo platform puts protein motion at the center of drug discovery and design, integrating a broad and tailored array of leading-edge experimental and computational approaches, including deploying the Anton 2 supercomputer, which was custom-built by D. E. Shaw Research, LLC, or D. E. Shaw Research, to perform

 

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molecular dynamic simulations of proteins. We have access to the Anton 2 supercomputer, which we believe to be the only resource of computational power of its caliber, through our collaboration with D. E. Shaw Research, LLC, or D.E. Shaw Research, pursuant to which we collaborate with D. E. Shaw Research to rapidly develop various protein models. Our use of the Anton 2 supercomputer and our collaboration with D.E. Shaw Research is subject to the terms and conditions of the Amended and Restated Collaboration and License Agreement with D. E. Shaw Research, or the DESRES Agreement. See “—Collaboration and License Agreement with D. E. Shaw Research, LLC.” We deploy the power of the platform in three key phases of MBDD discovery:

 

   

Target Modulation Hypothesis. By generating fundamental insights into the structure and conformational dynamics of full-length proteins, our Dynamo platform enables us to model a target protein’s function, to develop unique motion-based hypotheses for how to modulate the protein’s behavior, and to identify potential novel binding sites for new therapeutic agents.

 

   

Hit Finding and Lead Generation. The integration of our computational and experimental platforms affords a deeper functional understanding of our targets and enables the design of physiologically relevant activity-based, ligand-centric and computational screens. These highly differentiated screens have the ability to yield a larger number of chemical series and potential therapies to proceed into lead optimization than conventional experimental techniques alone.

 

   

Lead Optimization. Our Dynamo platform uses advanced computational models in tight integration with our medicinal chemistry, structural biology, enzymology and biophysics capabilities to predict, design and experimentally evaluate compounds that will achieve the most desirable characteristics, including potency, selectivity, bioavailability, and drug-like properties. We believe our approach enables us to converge on optimized compounds with much greater efficiency than conventional approaches, which are typically highly iterative over an extended timeframe.

Our Dynamo platform has the potential to address a diverse range of disease targets, including those proteins that have not been addressed selectively and potently with existing therapies. While we have initially focused our Dynamo platform on small molecule drug discovery in the area of precision oncology, we believe it could be readily deployed across broader precision and genetic medicine areas as well as other therapeutic modalities, such as protein therapeutics and antibody design.

Our Programs

We have deployed our technology platform to build a pipeline of product candidates to address targets in precision oncology, where there is clear evidence linking target proteins to disease and where molecular diagnostics can unambiguously identify relevant patients for treatment. We believe this approach will increase the likelihood of successfully translating a specific pharmacological mechanism into clinical benefit. The targets associated with all of our current programs are Category 1 Targets under our Amended and Restated Collaboration and License Agreement with D. E. Shaw Research. See “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC.”

 

 

LOGO

 

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RLY-1971

RLY-1971 binds and stabilizes SHP2 in its inactive conformation. SHP2 promotes cancer cell survival and growth through the RAS pathway by transducing signals downstream from receptor tyrosine kinases (RTKs). Additionally, activating SHP2 mutations causes enhanced signaling in the absence of ligand stimulation and has been identified as an oncogenic driver in a range of tumors. As a critical signaling node and regulator, SHP2 drives cancer cell proliferation and plays a key role in the way cancer cells develop resistance to targeted therapies. We believe that inhibition of SHP2 could be effective as a monotherapy in cancers with specific alterations and could block a common path that cancer cells exploit to resist other antitumor agents, thus overcoming or delaying the onset of resistance to those therapies.

We are currently evaluating the safety and tolerability of RLY-1971 in a Phase 1 dose escalation study in patients with advanced or metastatic solid tumors. We anticipate providing an update on clinical data and the clinical development plan in 2021. Given the range of cancers that are related to SHP2 dependence, in addition to its potential use in monotherapy settings, we believe RLY-1971 could serve as a backbone for compelling combination therapies. We believe SHP2-mediated cancers affect approximately 125,000 late-line patients annually in both monotherapy and combination therapy settings in the U.S. In the future, if RLY-1971 advances to earlier lines of treatment, we believe it could potentially have applicability to approximately 290,000 patients annually in the U.S.

RLY-4008

RLY-4008 is designed to be an oral, small molecule, selective inhibitor of fibroblast growth factor receptor 2, or FGFR2, a receptor tyrosine kinase that is frequently altered in certain cancers. FGFR2 is one of four members of the FGFR family, a set of closely related proteins with highly similar protein sequences and properties. RLY-4008 demonstrates FGFR2-dependent killing in cancer cell lines, while showing minimal inhibition of other targets, including other members of the FGFR family. We plan to initiate a Phase 1 clinical trial for RLY-4008 in patients with solid tumors having oncogenic FGFR2 alterations in the second half of 2020. We believe FGFR2-mediated cancers affect approximately 8,000 late-line patients annually in the U.S. In the future, if RLY-4008 advances to earlier lines of treatment, we believe it could potentially address approximately 20,000 patients annually in the U.S.

Mutant-PI3Kα Inhibitor Program

RLY-PI3K1047 is a lead compound in our franchise of programs targeting cancer-associated mutant variants of phosphoinositide 3-kinase alpha, or PI3Kα. RLY-PI3K1047 is a small molecule inhibitor of PI3Kα that we designed specifically to target PI3Kα H1047X mutants via a previously undescribed allosteric mechanism. Oral dosing of RLY-PI3K1047 resulted in tumor growth inhibition in mouse xenograft models of PI3Kα H1047R mutant carcinoma. We expect to begin IND-enabling studies for a differentiated PI3Kα H1047X mutant-selective inhibitor in 2021. We believe PI3Kα H1047X mutant cancers affect approximately 10,000 late-line patients annually in the U.S. In the future, if RLY-PI3K1047 advances to earlier lines of treatment, we believe it could potentially be suitable for use in approximately 50,000 patients annually in the U.S.

Two additional mutations of interest for our PI3Kα franchise are E542X and E545X. We estimate there are approximately 15,000 late-line and 60,000 total patients annually in the United States who might benefit from a PI3Kα targeted inhibitor that targets the mutations at E542 and E545.

Discovery Programs

We are deploying our Dynamo platform and MBDD approach to advance multiple discovery-stage precision oncology programs. As with our lead programs, these programs leverage insights into protein conformational dynamics to address high-value, genetically validated oncogenes that previously have been intractable to

 

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conventional drug-discovery approaches. Our Dynamo platform’s protein visualization capabilities can be applied to multiple therapeutic areas beyond precision oncology. To further diversify our pipeline, we are leveraging our Dynamo platform to address validated targets in monogenic diseases, where genetic alterations lead to disease-causing defects in protein motion.

Our Strategy

Our mission is to leverage unique insights into protein motion to transform the lives of patients suffering from debilitating and life-threatening diseases through the discovery, development and commercialization of small molecule therapies. We believe that, by placing protein motion at the heart of MBDD discovery, our unique Dynamo platform has the potential to address previously intractable precision medicine targets. To accomplish this, we intend to continue building a team that shares our commitment to patients, to continue to enhance our platform, and to rapidly advance our precision medicine pipeline of product candidates. The key elements of our strategy are to:

Rapidly advance our lead precision oncology programs, RLY-1971, RLY-4008, RLY-PI3K1047, through clinical development and regulatory approval. We believe our lead precision oncology programs have the potential to treat a wide variety of cancers either as monotherapy or in combination regimens. In the first quarter of 2020, we initiated a Phase 1 clinical trial of RLY-1971 and expect to initiate a Phase 1 clinical trial for RLY-4008 in the second half of 2020. In 2021, we expect to have early safety and efficacy data for RLY-4008, to have additional clinical data for RLY-1971 informing future development plans and to be in IND-enabling studies for our RLY-PI3K1047 program. We plan to conduct our clinical studies in genetically-defined patient populations. To potentially mitigate development risks, we will leverage learnings from recently approved precision oncology drugs to inform the clinical and regulatory pathways for our lead oncology programs. If we are successful in achieving clinically meaningful anti-tumor activity across solid tumor types, we plan to meet with regulatory authorities to discuss expedited regulatory approval strategies.

Continue to enhance our unique drug-discovery platform. Our Dynamo platform uniquely integrates a broad range of leading-edge experimental and computational technologies and tools, providing us with fundamental insights into the conformational dynamics of target proteins. We are committed to continuously integrating new computational and experimental tools, technologies and capabilities to enhance the power of our Dynamo platform.

Harness the insights and data generated from our platform against intractable targets in oncology and other therapeutic areas. We have built a drug discovery process that leverages our collaboration with D. E. Shaw Research and their access to the Anton 2 supercomputer and our proprietary computational workflows. We are committed to deploying our Dynamo platform against targets in additional therapeutic areas beyond oncology. Our next focus, outside of oncology, is on rare genetic diseases where protein targets are genetically validated, where defects in protein conformational dynamics are abundant, and where we believe our approach is well-suited to identify therapies with the potential to have transformative impact for patients.

Selectively enter into strategic collaborations to maximize the value of our platform and pipeline. We retain full development and commercialization rights to our pipeline of precision medicine programs. We intend to build a fully integrated biopharmaceutical company and independently pursue the development and commercialization of our key product candidates. Given our potential to generate novel product candidates addressing a wide variety of therapeutic indications, we may enter into strategic partnerships around certain targets, product candidates, disease areas or geographies, if we believe these collaborations could accelerate the development and commercialization of our product candidates, and allow us to realize additional potential in our product candidates and our platform.

Our Team

Our company was founded and continues to be supported by world-class scientific advisors, including Dr. Matt Jacobson, Dr. Mark Murcko and Dr. Dorothee Kern, as well as by D. E. Shaw Research, led by chief scientist

 

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Dr. David E. Shaw. We are leaders in leveraging insights into the dynamic behavior of proteins in drug discovery. We have assembled a scientific team with extensive expertise in leading-edge experimental and computational drug discovery approaches, as well as a development team with extensive experience in the pre-clinical development, translational medicine and clinical development of precision oncology medicines. In aggregate, our team has previously submitted over 70 INDs and 20 NDAs and contributed to the development of more than 20 approved products. Our President and Chief Executive Officer, Dr. Sanjiv K. Patel, has more than 15 years of experience in the biopharmaceutical industry, and has led our key business operations and strategic corporate planning activities since 2017. Dr. Don Bergstrom, our Head of Research and Development has more than 15 years of experience in the biopharmaceutical industry and has held various leadership positions at other companies in oncology drug discovery, development, and translational medicine. Members of our management team have held leadership positions at companies that have successfully discovered, developed and commercialized therapies for various cancers and devastating rare diseases. These companies include Allergan, Algeta, Blueprint Medicines, Eli Lilly, Merck, Novartis, Sanofi, and Vertex. Through April 30, 2020, we have raised approximately $520 million supported by a leading syndicate of investors, including SoftBank Vision Fund, Third Rock Ventures, an affiliate of D. E. Shaw Research, BVF Partners, Casdin Capital, EcoR1 Capital, Foresite Capital, GV, Perceptive Advisors, Alexandria Equities, Tavistock, and Section 32.

Background of Precision Medicine

For most of the past 50 years, the study of the link between genes and disease was focused predominantly on rare, single-gene, inherited diseases. This was primarily due to the limitations of the available tools to interrogate the genome. The completion of the Human Genome Project in 2003, however, began to transform our understanding of genetic alterations, protein dysfunction and disease pathobiology, thereby marking the advent of precision medicine.

The successful sequencing of the human genome relied upon critical advances in computing power and experimental techniques. The constant evolution of these foundational computational and experimental capabilities has led to exponential growth in the molecular understanding of disease, that is, the ability to elucidate a disease’s underlying biological dysfunction on a genetic level. For example, over 125 specific genetic alterations across 10 key cellular signaling pathways have been identified across 89% of solid tumors. In addition, we now know that over 4,000 individual genetic alterations, and their associated protein defects, cause over 7,000 rare inherited diseases.

The ever-deeper insights into the molecular basis of disease have ushered in the current era of precision medicine and, more specifically, precision oncology. The pioneering success in precision oncology was the approval of Gleevec, which is used to treat a rare type of leukemia called chronic myelogenous leukemia (CML) and was shown to improve response rates for patients from 55% to 95% over the standard of care. In the late 2000’s and early 2010’s, clinical evidence began to emerge implicating specific target proteins such as ALK, EGFR, RET, ROS, TRK and others in causing cancer. When the industry progressed from first-generation multi-kinase inhibitors of these target proteins to subsequent generation inhibitors, we learned another important lesson: the ability of a drug to specifically and deeply inhibit the protein target of interest while minimizing the inhibition of other closely related protein targets can result in a profound difference in outcome. A key example of this is seen in two drugs targeting the altered protein RET. One is a non-specific drug, cabozantinib, and the other is a purpose-built, specific drug, selpercatinib. Seplercatinib increased tumor response rate to 68% from the 28% demonstrated for cabozantinib. Even with successes like these, progress against the broader genetically validated target universe has been slow.

We believe the slow progress against the large list of genetically validated targets is fundamentally due to the reliance on conventional drug discovery tools, such as structure-based drug design (SBDD). While SBDD is well-suited to solving some drug discovery problems such as orthosteric site kinase inhibitors, its reliance on static images of protein fragments limits its ability to gain accurate insights into the dynamic behavior of proteins in their natural state, which in turn limits its ability to discover medicines with exquisite specificity.

 

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Protein Motion in Disease

The human genome encodes tens of thousands of different proteins. Proteins are molecular machines that control our most vital cellular functions and to adopt unique structures as determined by their amino acid sequence. However, proteins are not static objects. They are in constant motion, dynamically adopting ensembles of different conformations. The concept that appropriate protein conformational dynamics, or protein motion, are essential to healthy biological function dates to the 1960s with the understanding that certain proteins have to adopt multiple conformations to carry out their function within the body. For example, in the case of hemoglobin, a well-studied oxygen carrier protein, it was observed that binding of an oxygen molecule modulated hemoglobin’s conformation to increase its affinity for additional oxygen molecules. The transition between protein conformations can either occur at relatively short timescales (nanoseconds) or long timescales (seconds) and across varying scales of distance (angstroms to micrometers). Importantly, subtle differences in protein conformational dynamics (on the order of a few angstroms) have been observed in otherwise structurally similar proteins. In addition to these small-scale changes, global motion of proteins can create on and off-states that can be dynamically regulated.

Defects in the conformational dynamics of proteins have been implicated in up to 40% of all diseases. For example, in oncology, gene fusions of receptor tyrosine kinases can result in aberrant protein conformations, such as stable dimerization, which then lead to elevated kinase activity and cancer cell growth. Protein conformational defects can also decrease the activity of proteins. Despite the well-accepted importance of protein conformational dynamics in health and disease, tools to study dynamics have only recently matured. Typical efforts to understand protein structure rely on studying proteins in highly ordered crystals with structural data collected at cryogenic temperatures (-173 °C), resulting in the observation of proteins as static, rigid molecules. However, because proteins can adopt a multitude of conformational states, their biologically active conformations may be poorly represented by a crystal structure. Therefore, these rigid structures do not accurately represent the dynamic nature of a protein in its biological context, which could impede drug design.

Our Dynamo Platform

The continued and rapid development of new experimental techniques, such as room-temperature crystallography, and computational techniques, such as molecular dynamics and machine learning, is now enabling the deep understanding of protein motion to discover new therapeutic agents. Dynamo was built to capitalize on these recent advances to develop medicines against protein targets with greater specificity and potency. Using our Dynamo platform, we pivot from industry standard SBDD, which is based on static structures and often relies on incomplete protein fragments, to a novel drug-discovery paradigm based on fundamental insights into protein motion, which we term Motion Based Drug Design (MBDD). We leverage insights from our platform to develop novel, motion-based hypotheses for how to drug target proteins. We can then more rapidly identify and optimize effective lead compounds by integrating powerful experimental and computational tools to sample a much broader range of chemical space than is possible using conventional approaches, which are labor intensive and require significant experimental effort.

 

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In 2016, the confluence of three forces - the proliferation of readily available genomic data, the evolution of experimental techniques, and advances in computational power and speed - led to the founding of Relay Therapeutics. We believe we are uniquely positioned to consolidate these advances and, when combined with our world-class team of experimental and computational experts, integrate these solutions in motion-based drug discovery.

 

LOGO

Our platform integrates a broad and tailored array of leading-edge experimental and computational approaches to gain fundamental insights into protein function (Figure 1).

Figure 1: Dynamo drug-discovery platform integrates leading-edge experimental and computational tools.

 

 

LOGO

We deploy the power of our Dynamo platform in three key phases of MBDD discovery (Figure 2). We first generate a target modulation hypothesis by developing a detailed mechanistic understanding of the dynamic behavior of the target protein and by identifying pockets where binding of a small molecule can impact protein function. Our platform then aids in the efficient generation of lead compounds through an integrated system of experimental and virtual screens. This enables rapid lead optimization by computationally prioritizing compounds for experimental evaluation. And, because each cycle generates new learnings for both our team and our underlying machine learning models, our successful iteration of this process continuously improves our understanding of protein motion which leads to a more effective and efficient drug discovery process.

 

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Figure 2: Dynamo can be deployed across the various stages of drug discovery to provide novel insights and accelerate drug discovery.

 

LOGO

Target Modulation Hypothesis

Our first step is to establish a target modulation hypothesis for our protein target of interest.

For each target, the initial goal is to better understand the structure and conformational dynamics of all domains of a protein to generate the target modulation hypothesis. The process typically begins by expressing full-length proteins so we can fully understand the roles of specific domains and accurately capture the differences between the wild-type and mutant forms of the protein (or of different isoforms, etc.). We use a range of leading-edge structural biology techniques (e.g., room temperature X-ray crystallography, Cryo-EM) to visualize these protein conformations in the most physiologically representative context possible. The resulting data allow us to better visualize full-length proteins at atomic resolution. This comprehensive and dynamic visualization enables us to identify potential areas of interest in a protein target that can be exploited in the drug discovery process.

Using a range of protein visualization methods, we can generate a rich experimental understanding of the dynamic conformations of the target protein of interest. We can deploy these experimental data sets in an industry-leading computational platform to generate virtual simulations (molecular dynamics) of the full-length protein moving over long timescales. Long timescale molecular dynamics simulations informed by the experimentally derived protein structural data help us better understand how proteins move and change shape over time. Our collaboration with D. E. Shaw Research, provides us with access to Anton 2, their proprietary supercomputer that was custom-built for performing molecular dynamics simulations – a technique that calculates the forces between each atom and every other atom in a given system at discrete time points in order to model behavior over time. We use MD simulations to predict the behavior of a given protein system, and with our collaborators we have simulated systems of up to 1 million atoms at time slices of 2.5 x10-15 seconds. The individual time slices are then stitched together to create a high definition movie of the target protein over biologically relevant timescales, typically tens of microseconds. Other drug discovery approaches may use molecular dynamics, but they are limited to less than 1/100th of the timescale of our simulations. A 10 microsecond simulation of a 1 million atom benchmark protein (satellite tobacco mosaic virus), which requires one day of processing on the Anton 2, would require 271 days on conventional hardware (Nvidia V100) (Figure 3).

 

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Figure 3: The Anton 2 supercomputer enables Relay Therapeutics to simulate the motion of significantly larger biomolecules in far shorter periods of time compared to conventional forms of computation (e.g., GPUs and cloud computing).

 

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After understanding the dynamics of the target protein, we focus on identifying mechanisms to modulate the protein with a small molecule drug. There are multiple ways that a small molecule drug may bind to a target protein to impact its function. Molecules bind to a protein by interacting with amino acids which are often situated in a cavity on the protein’s surface, called a pocket. Most small molecule drugs modulate the function of the target protein by binding to the pocket that directly mediates the protein’s activity (“active” site). We leverage our platform to identify novel pockets that are not the active site but do impact protein function, so called “allosteric” sites. These binding sites are often part of an allosteric regulatory network that we can elucidate through a combination of computationally derived hypotheses and laboratory experiments on full-length proteins. Our ability to identify novel druggable pockets that have not previously been observed provides new handles for gaining isoform or mutant selectivity.

Our understanding of protein motion and modulation from our Dynamo platform informs the strategy and tools we employ for hit finding and lead generation phases.

Hit Finding and Lead Generation

Once we have identified potential binding pockets and established a target modulation hypothesis, we then transition into hit finding and lead generation, where the goal is to identify a molecule that can serve as the starting point for a new drug.

Our Dynamo platform leverages our motion-based functional understanding of target proteins to enable the design of physiologically relevant activity-based and ligand-centric screens. These experimental measurements of biochemical or biophysical activity are then used to identify molecules to modulate our protein targets. Our Dynamo platform encompasses a variety of screening techniques to identify chemical starting points.

In parallel to our experimental screening efforts, we have made investments in our infrastructure that enables us to use cloud-computing to screen billions of molecules from a virtual compound library in days. The vast number of virtual molecules enables us to sample a much wider diversity of chemical space than would be possible through conventional methods.

Given the powerful hit finding approaches we utilize, we are able to generate a broad diversity of novel small molecules that act via our motion-based target modulation hypothesis and are ready to progress into lead optimization.

 

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Lead Optimization

Once we have identified a chemical starting point and generated a lead compound, optimization is necessary to obtain a molecule that has the desired characteristics. Our Dynamo platform uses advanced computational models in tight integration with our medicinal chemistry, structural biology, enzymology and biophysics capabilities to predict and design the compounds that will achieve the most desirable characteristics, including potency, selectivity, bioavailability, and drug-like properties. Conventional optimization of small molecule lead compounds involves a highly iterative process that includes designing and synthesizing thousands of closely related compounds and experimentally testing them in the lab. This process is time consuming and requires significant experimental effort and expense.

During optimization, we leverage long timescale MD simulations to study binding pocket dynamics and to test analogs of our lead compound to prioritize which ones to synthesize and test experimentally.

Once we have made and tested compounds in the lab, we can compare them to our computational predictions. Over time we can improve our computational predictions using the data that we generate experimentally. We believe that this integration of our long timescale molecular dynamics simulations with experimental data accelerates our lead optimization process.

The Anton 2 supercomputer, that we access through our collaboration with D. E. Shaw Research, makes it possible to run thousands of simulations, which generate vast datasets. To take maximum advantage of this data, we use machine learning algorithms to establish relationships between molecular interactions observed in the simulations and biological activity observed in experiments. In Figure 4 we show how a machine learning model can be trained based on multiple parameters, including ligand motion, protein-ligand interactions and protein conformation, collected during long timescale MD simulations of molecules interacting with our target protein. This model can then be used to make predictions to prioritize the synthesis of new molecules.

Figure 4: Data from long timescale molecular dynamics simulations are used to train machine learning models that can prioritize the next set of molecules to test.

 

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Benefits of Dynamo Platform

Our Dynamo platform was built with the belief that integrating leading-edge computational and experimental approaches would unlock new insight about protein dynamics and ultimately the drug discovery process. We have shown multiple times that we can use this approach to develop novel target modulation hypotheses, generate a broad range of molecular starting points, and rapidly optimize potential drugs. Figure 5 illustrates the timelines for our first two programs relative to conventional drug discovery. In general, it takes 3 to 5+ years to advance from a validated hit to a development candidate (DC). For our programs, however, we were able to advance from hit to DC in 2 years for RLY-1971 and 18 months for RLY-4008. In addition to the advantage of speed, as compared to conventional SBDD, our platform enables us to explore a greater diversity of chemical

 

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space, as illustrated by the number of chemical series. This breadth increases the intellectual property landscape that we cover and improves our ability to identify development candidates with optimal drug-like properties.

Figure 5: The Relay Therapeutics Dynamo platform compared to conventional drug discovery approaches.

 

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Our Therapeutic Opportunity

While our Dynamo platform could potentially be applied to a wide range of disease-associated protein targets, we currently focus on precision medicine targets, for which alterations in specific genes are known to cause disease. The genetic diseases we pursue include cancers with clear genetic driver alterations in the tumor genome, as well as monogenic diseases where the causal mutations are present at birth.

Precision Oncology

Our initial focus is in the area of precision oncology where we have seen initial proof of platform in our leading precision oncology pipeline. Over 125 genetic driver alterations across 10 canonical cellular signaling pathways have been identified in 89% of tumors. Targeting these genetic drivers could lead to clinically meaningful responses in patients. However, most of these targets have been intractable to conventional drug discovery approaches or are inadequately drugged by approved therapies. We believe our platform has the potential to address many of these targets by leveraging novel insights into protein dynamics.

Monogenic Diseases

Thousands of monogenic (change in a single gene) diseases exist and affect millions of individuals worldwide. Over 4,000 individual genetic drivers, and their associated protein defects, cause over 7,000 rare monogenic phenotypes. However, since 1996, the FDA has approved fewer than 70 therapies to specifically treat these conditions, presenting a vast unmet therapeutic need. We believe our Dynamo platform has the potential to address many of these targets.

Other Precision Medicines Opportunities

The decreasing cost and increasing resolution of genomic data have identified hundreds of additional actionable genetic targets beyond precision oncology and monogenic disease. These include genetically-defined

 

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subpopulations of more common diseases in neurology, immunology and other therapeutic areas. We believe that there are multiple genetically-validated targets in these disease areas that are unaddressed by approved therapies, representing an area of significant unmet need. We believe our Dynamo platform has the potential to address many of these targets.

Our focus on addressing the genetic drivers of disease, also referred to as genetically validated targets, confers several advantages, including:

Clear causal link to disease: Genetic diseases offer an unambiguous causal link between the mutational alteration in a specific gene, disease biology, and a patient’s symptoms, such that the translational medicine hypothesis is well-validated at the beginning of a drug discovery program.

Precision medicine opportunity: Because of the strong link between specific genetic alterations and disease symptoms, it is possible to precisely target therapy to genetically identifiable patients who are most likely to respond favorably to a precision medicine.

Increased translational success: We believe that the ability to precisely target therapy to patients who are most likely to respond favorably to treatment will, in turn, increase the likelihood of successfully translating a specific pharmacological mechanism into clinical benefit.

While we have initially focused our efforts on small molecule therapies, our Dynamo platform could also be readily deployed towards the discovery of other therapy types, such as large molecules including peptide or protein therapeutics.

Our Product Pipeline and Programs

We have deployed our Dynamo platform to initially focus on the area of precision oncology. To date, we have generated several promising precision oncology, orally available, small molecule product candidates that address previously intractable oncogenic targets. Our lead programs are targeting a range of driver alterations to treat various cancers that we believe can have a greater probability of translational success because they are genetically or clinically validated. The targets associated with all of our current programs are Category 1 Targets under our Amended and Restated Collaboration and License Agreement with D. E. Shaw Research. See “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC.” In addition, we are also advancing several early programs focused on other precision oncology and rare genetic disease targets. We retain worldwide development and commercialization rights to all our programs.

The following table summarizes our current portfolio of product candidates and programs.

 

 

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Our Programs

RLY-1971, an inhibitor of SHP2

Overview

RLY-1971 is designed to be an oral, small molecule inhibitor of the protein tyrosine phosphatase SHP2 that binds and stabilizes SHP2 in its inactive conformation. SHP2 promotes cancer cell survival and growth through the RAS pathway by transducing signals downstream from receptor tyrosine kinases (RTKs). Additionally, activating SHP2 mutations result in enhanced signaling in the absence of ligand stimulation and has been identified as oncogenic drivers in a range of tumors. As a critical signaling node and regulator, SHP2 drives cancer cell proliferation and plays a key role in the way cancer cells develop resistance to targeted therapies. We believe that inhibition of SHP2 could be effective as a monotherapy in cancers with specific alterations and could block a common path that cancer cells exploit to avoid killing by other antitumor agents, thus overcoming or delaying the onset of resistance to those therapies. We are currently evaluating the safety and tolerability of RLY-1971 in a Phase 1 dose escalation study in patients with advanced or metastatic solid tumors. We anticipate providing an update on clinical data and the clinical development plan in 2021. Given the range of cancers that are related to SHP2 dependence, we believe, in addition to its use in monotherapy settings, our therapy has the potential to serve as a combination backbone therapy.

We estimate that, across all solid tumors, there are approximately 68,000 late-line patients annually in the U.S. who might benefit from a SHP2 targeted inhibitor as a monotherapy. Additionally, we estimate there are more than 56,000 late-line patients annually in the U.S. with advanced lung cancer who might benefit from a combination of RLY-1971 with another targeted inhibitor. This results in approximately 120,000 late-line cancer patients annually in the U.S. that may benefit from RLY-1971. In the future, if RLY-1971 advances to earlier lines of treatment, we believe it could be applied in the treatment of approximately 290,000 patients annually in the U.S.

Figure 6: SHP2 monotherapy and combination therapy addressable patient populations

 

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1) Data reflects our estimate of biomarker frequency in advanced solid tumors (monotherapy) and advanced lung cancer (combination). Estimated frequency percentages are based on counts of known/likely functional alterations in the Foundation Medicine Insights database. 2) Based on projected cancer deaths in all solid tumors from the National Cancer Society’s SEER database as a proxy for late-line cancer patient incidence. 3) These data are based on projections from the National Cancer Society’s SEER program for estimated new cases of advanced solid tumors and advanced lung cancer.

SHP2: a central regulator of cell signaling

SHP2 is a protein tyrosine phosphatase that plays a critical role in the transduction of intracellular signals downstream from receptor tyrosine kinases (RTKs), promoting cell survival and growth through the RAS

 

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pathway. SHP2 was the first phosphatase identified as a recurrently mutated oncogene, providing genetic support for the importance of SHP2 activation in promoting cancer. In addition to the central role of SHP2 in RTK signaling, some alterations in the RAS signaling pathway amplify signals transmitted by SHP2 and can therefore be suppressed by SHP2 inhibition. These include specific mutant forms of RAS (KRAS G12C and KRAS G12A), genomic amplification of wild-type KRAS, loss-of-function mutations in NF1, and class 3 mutations in BRAF. Consequently, there are multiple cancer genetic contexts where SHP2 inhibition could be beneficial as a monotherapy.

A key feature of SHP2 as an oncology target is its ability to regulate cell signaling that arises from multiple RTKs (Figure 7). Therapies targeted to these RTKs, and therapies targeting downstream nodes such as PI3K, KRAS and MEK, are often unable to durably inhibit tumor growth because these tumors are able to bypass the targeted RTK and shift growth factor signaling to an alternate RTK, rendering them less sensitive to the targeted therapy. This is generally referred to as bypass resistance. Because SHP2 regulates the activity of multiple RTKs, inhibition of SHP2 is an effective way to overcome bypass resistance as confirmed by cellular and animal model experiments. Indeed, added benefit of SHP2 inhibition has been demonstrated pre-clinically in combination with multiple agents, such as those targeting MEK, KRASG12C, EGFR, and ALK. We believe our SHP2 inhibitor has the potential to become a commonly used combination partner with multiple targeted therapies including those in our own pipeline.

Figure 7: SHP2 regulates the activity of multiple receptor tyrosine kinases (RTKs).

 

 

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Our solution, RLY-1971

RLY-1971 is a small molecule inhibitor of SHP2 that binds and stabilizes SHP2 in its inactive conformation.

We utilized a combination of experimental and computational techniques to identify unique inhibitors. For example, using long timescale MD simulations we were able to understand changes in the dynamics of the binding pocket over time that would not have been appreciated with shorter timescale simulations (Figure 8). Informed by high-resolution room-temperature x-ray crystallographic data, we created a virtual representation of our lead molecule bound to the SHP2 protein. We then simulated this system over long timescales. As shown in Figure 20, we observed that a loop (green) to the left of the small molecule (orange) moves down towards the molecule over the course of the simulation. Our medicinal chemists were then able to leverage this understanding in their designs to create an inhibitor of SHP2. Importantly, this loop cannot be resolved using conventional x-ray

 

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crystallography. Therefore, relying on standard techniques could deprive medicinal chemists of a critical insight as they attempt to design improved compounds.

Figure 8: We depict a small molecule docked in a representation of the SHP2 protein where there is a green loop visible to the left of the small molecule (orange). A 500 ns MD simulation (0.5 µs) shows that the green loop is far away from the small molecule (left). A longer simulation (10.0 µs), reveals that the loop flips downwards, close to where the small molecule binds (right).

 

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We then prioritized compounds with the best predicted binding to SHP2 over a 10 µs molecular dynamics simulation and tested the most stable compounds in our biochemical assay. This enabled filtering and prioritization of candidate molecules, resulting in the identification of RLY-1971, our clinical-stage compound. RLY-1971 inhibits SHP2 phosphatase activity (750 pM IC50) in a biochemical assay designed to monitor dephosphorylation of a probe substrate. RLY-1971 also inhibits SHP2 in cellular assays, as measured by inhibition of ERK1/2 phosphorylation at Thr202/Tyr204 (1.3 nM IC50 in KYSE-520, an EGFR amplified gastric cancer cell line), and by inhibition of cancer cell proliferation (70 nM IC50 in KYSE-520 and 11 nM IC50 in NCI-H358, a KRASG12C mutant NSCLC cell line) (Figure 9).

Figure 9: RLY-1971 potently inhibits SHP2 in biochemical and cellular assays.

 

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*The biochemical potency of RLY-1971 was assessed in duplicate by determining activity of SHP2 in prompt fluorescence assay format. The inhibition of SHP2 by RLY-1971 was monitored using an assay in which SHP2 was incubated with a SHP2-activating peptide. After a 60 minute incubation period, the surrogate SHP2 substrate DiFMUP was added to the reaction. The conversion of DiFMUP to DiFMU was monitored continuously for 10 minutes using an EnVision Reader microplate reader (Perkin Elmer).

**KYSE-520 cells were plated at a density of 5000 cells/well of 384-well flat-bottom plate (Corning) and allowed to adhere at 37°C, 5% CO2 incubator. After overnight incubation, compound was added to cells and returned to

 

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incubator for two hours. After incubation, cells were washed, lysed, and abundance of pERK was determined using the AlphaLISA SureFire Ultra p-ERK1/2 Assay Kit (Perkin Elmer) and read on an EnVision Reader (Perkin Elmer) using standard settings. Compound was tested in duplicate in three independent assays.

*** NCI-H358 cells were plated at a density of 2000 cells/well of 384-well round bottom ultra-low attachment plate (Corning) and cells were allowed to form three-dimensional structures at 37°C, 5% CO2 incubator for 48 hours. Compounds were added to plates and cells are returned to incubator for 120 hours. After incubation, CellTiter-Glo 3D reagent (Promega) was added into each well and incubated at room temperature for 30 minutes followed by reading on an EnVision Reader (Perkin Elmer) using standard conditions. Assay data was normalized to untreated (DMSO) values, and dose response curve fitting and IC50 values were determined using Genedata analyzer. All doses were tested in triplicate.

**** KYSE-520 cells were plated at 250 cells per well of 384-well plate and cells were allowed to adhere at 37°C, 5% CO2 incubator. After overnight incubation, cells were then treated in triplicate with serial 3-fold dilutions of inhibitor in complete growth media and cells were returned to incubator for an additional 120 hours. CellTiter-Glo 3D reagent (Promega) was added into each well and incubated at room temperature for 30 minutes followed by reading on an EnVision Reader (Perkin Elmer) using standard conditions. Assay data was normalized to untreated controls, and dose response curve fitting and IC50 values were determined using Genedata analyzer.

RLY-1971 shows minimal inhibition of targets other than SHP2. RLY-1971 has bioavailability suitable for oral dosing, is metabolically stable, and demonstrates favorable pharmacokinetic properties in preclinical in vivo models. We do not predict that RLY-1971 will have significant drug-drug interactions based on weak inhibition of drug metabolizing enzymes. It is readily synthesized in bulk, can be formulated for oral delivery, and was well-tolerated in animal models.

We believe the key differentiating features of RLY-1971 from other SHP2 inhibitors in clinical development are:

 

   

Chemical distinctiveness: it is chemically distinct from other SHP2 inhibitors in clinical development

 

   

Potency: demonstrated 750 pM IC50 inhibition of SHP2 phosphatase in biochemical assays

 

   

Dosing potential: projections of human pharmacokinetics suggest RLY-1971 will be amenable to continuous once daily dosing at relatively low active doses

RLY-1971 as a monotherapy

Given the known cancer mutations in SHP2 and previous studies using SHP2 inhibitors, SHP2 inhibition may be active as a monotherapy in certain genetic alterations. SHP2 inhibition has been shown in third party studies to result in tumor stasis or regression in preclinical xenograft models of tumors harboring KRAS genomic amplification, KRASG12C mutations , NF1LOF mutations, or BRAFClass3 mutations. Consistent with these findings, in our internal pre-clinical studies, RLY-1971 inhibited the proliferation of a panel of cancer cell lines driven by KRAS mutations that require signals transmitted by SHP2 (KRASG12C and KRASG12A) but was inactive in cancer cell lines driven by other KRAS mutations that do not require SHP2 signals (KRASG12D) (Figure 10).

 

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Figure 10: Inhibition of proliferation by RLY-1971 in cancer cell lines driven by KRAS mutations. Mutations that require SHP2 signals are potently inhibited by RLY-1971, whereas mutations that do not require SHP2 signals are insensitive to RLY-1971.

 

 

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A panel of KRAS-G12 mutant cancer cell lines were grown in 3D spheroids and treated with RLY-1971 in a proliferation assay. KRAS-G12C and G12A mutations retain intrinsic GTPase activity and therefore require SHP2 signaling, whereas the KRAS-G12D mutation does not. For cell lines indicated, cells were plated at a density of 2000 cells/well in round bottom ultra-low attachment 384-well plates (Corning) in growth media and cells are allowed to form three-dimensional structures at 37°C, 5% CO2 incubator for 48 hours. After a 48 hour incubation period, cells were then treated in triplicate with serial 3-fold dilutions of inhibitor in complete growth media and cells were returned to incubator for an additional 120 hours. CellTiter-Glo 3D reagent (Promega) was then added into each well and incubated are room temperature for 30 minutes followed by reading on an EnVision Reader (Perkin Elmer) using standard conditions. Assay data was normalized to DMSO control wells. Dose response curve fitting and IC50 values were determined using Genedata analyzer.

 

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To demonstrate activity of RLY-1971 as a single agent in vivo, we tested it in multiple cancer xenograft mouse models. Consistent with our in vitro data and the role of SHP2 as a critical mediator of RTK signaling, we observed that RLY-1971 induced regression in cancer xenograft models harboring a KRASG12C mutation or genomic amplification of EGFR when administered on a continuous dosing schedule (Figure 11).

Figure 11: RLY-1971 induces regression in KRAS G12C mutant and EGFR amplified cancer xenograft models.

 

 

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Anti-tumor activity of the SHP2 inhibitor RLY-1971 dosed twice daily by oral administration (PO BID) in (a) the KRAS G12C mutant NSCLC xenograft model NCIH358 after 28 days on treatment and (b) the EGFR amplified gastric cancer xenograft model KYSE-520 after 21 days on treatment. Treatment with RLY-1971 resulted in dose-dependent anti-tumor activity and regression in both models. Data represent waterfall plots of individual end of study tumors, with tumor volume expressed as percentage change relative to initial tumor volume. Each animal is represented as a separate bar (number of mice per group = 8). For each of the studies the statistical difference between the vehicle treated and RLY-1971 treated groups was assessed by one-way analysis of variance (ANOVA). In both studies the RLY-1971 treated groups were determined to be significantly different than the vehicle treated group with a P value < 0.001.

In addition, RLY-1971 inhibited the proliferation of cancer cell lines engineered to express known cancer mutations in SHP2 (Figure 12). These mutations bias SHP2 towards an open, active conformation in direct opposition to the allosteric inhibition effected by RLY-1971. RLY-1971 retains nanomolar potency against activating mutations of SHP2. This could facilitate development of RLY-1971 in rare patient populations carrying SHP2 mutations. We also anticipate, based on experience with other precision oncology small molecule agents, that emergence of on-target mutations can be a method of acquired drug resistance in the clinic. We hypothesize that the activity of RLY-1971 against activating mutations of SHP2 could result in more durable benefit by suppressing the emergence of resistant cell populations with SHP2 resistance mutations.

 

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Figure 12: RLY-1971 inhibits the proliferation of cells expressing known SHP2 activating mutations.

 

 

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Inhibition of proliferation by RLY-1971 in TF1 cancer cells expressing known cancer mutations in SHP2. TF1 cells were engineered to express the SHP2 mutations (a) E69K (IC50 = 18.4 nM) or (b) A461T (IC50 = 7 nM) and treated with RLY-1971 in a proliferation assay. 500 cells/well were seeded in round bottom ultra-low attachment 384-well plates (Corning) in growth media and incubated for 48 hours at 37°C in 5% CO2. Cells were then treated in triplicate with serial 3-fold dilutions of inhibitor in growth media. Following incubation in the presence of compound for an additional 120 hours, cell viability was determined using the CellTiter-Glo 3D assay kit (Promega) following the manufacturer’s instructions. Luminescence was read in an EnVision Multimode Plate Reader (Perkin Elmer). Assay data was normalized to DMSO values, and dose response curve fitting was performed using Genedata analyzer.

RLY-1971 as a combination therapy

Given the role of SHP2 in mediating bypass resistance, we believe that SHP2 inhibitors have significant therapeutic potential when given in combination with other targeted therapies. Due to the increased potency and broader mutational coverage of next-generation targeted therapies, lower rates of on-target resistance have been observed in the clinic, with a greater number of patients progressing due to bypass resistance. An example of this is seen with EGFR inhibitors, where first-generation inhibitors (erlotinib and gefinitib) have greater on-target resistance compared to a third-generation inhibitor (osimertinib). As SHP2 is involved in signaling for numerous oncogenes, including EGFR, KRASG12C, ALK and MET, combination therapy with RLY-1971 represents a potential significant therapeutic opportunity.

Consistent with the role of SHP2 in RTK signaling in NSCLC, in our pre-clinical experiments, RLY-1971 demonstrated combination benefit in cell culture experiments when co-administered with inhibitors of MEK, ALK, or EGFR.

To demonstrate combination benefit with our SHP2 inhibitor in vivo, we combined RLY-1971 with the ALK inhibitor alectinib in an ALK-translocated NSCLC xenograft mouse model (NCIH3122) that was derived in vitro to have reduced sensitivity to ALK inhibition (Figure 13). DNA sequencing did not reveal new ALK mutations in the cell line. Therefore, these cells likely have reduced sensitivity due to a bypass mechanism. The combination of RLY-1971 with alectinib resulted in tumor regressions in all treated animals.

 

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Figure 13: Anti-tumor activity of RLY-1971 and the ALK inhibitor alectinib as single agents or in combination in an ALK translocated NSCLC xenograft model (NCI-H3122) derived in vitro to have reduced sensitivity to ALK inhibition.

 

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Daily oral administration of RLY-1971 at 30mpk BID in combination with alectinib at 10mpk QD (green) resulted in increased efficacy compared to alectinib at 10mpk QD (red) or RLY-1971 at 30mpk BID (orange) alone in an ALK translocated NSCLC xenograft model (NCI-H3122) derived in vitro to be less sensitive to ALK inhibition. Data represent waterfall plots of individual tumors after 27 days of treatment with compounds, with tumor volume expressed as percentage change relative to initial tumor volume. Each animal is represented as a separate bar (number of mice per group = 9). The statistical difference between the combination treated group and the RLY-1971 or alectinib single agent groups was assessed using an unpaired t-test. The combination treated group with significant with P-value <0.001 compared to either single agent group.

In addition to RTK inhibitors, combination benefit for SHP2 inhibition has been demonstrated with other targeted agents including MEK inhibitors and KRASG12C inhibitors in cancer xenograft models harboring KRASG12C mutations or KRAS amplifications. The efficacy of direct KRASG12C inhibition may be limited by adaptive feedback reactivation of the RAS-MAPK pathway through upregulation of multiple RTKs. Activation of these RTKs leads to compensatory activation of wild-type RAS isoforms, which cannot be inhibited by KRASG12C-specific inhibitors, thus leading to resistance. SHP2 is unique in that it transmits signals from multiple RTKs and is therefore critical in mediating feedback reactivation of the RAS pathway during KRASG12C inhibition.

Consistent with these observations, RLY-1971 demonstrated synergistic inhibition with the KRASG12C specific inhibitor ARS-1620 in a KRASG12C lung cancer model (Figure 14). Specifically, the inhibitory effect of both compounds was greater than the additive effect of each compound individually, suggesting SHP2 inhibition abrogates compensatory RAS-MAPK pathway activation during KRASG12C inhibition. Molecular characterization of phosphorylated-ERK (pERK), a downstream marker of RAS-MAPK pathway activity, supports this conclusion. The combination of RLY-1971 and the KRASG12C-specific inhibitor ARS-1620 was able to fully suppress pERK in this model, while each inhibitor individually only partially suppressed pERK. Based on these data, we believe that the combination of RLY-1971 with KRASG12C-specific inhibitors warrants clinical studies in patients with tumors harboring KRASG12C mutations.

 

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Figure 14: RLY-1971 and the KRASG12C-specific inhibitor ARS-1620 demonstrate synergy when used in combination in the KRASG12C NCIH23 lung cancer cell line.

 

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Synergy of RLY-1971 and the KRASG12C-specific inhibitor ARS-1620.

(a) The Loewe model of drug combination synergy uses cellular potency data to calculate the additive nature of drug combinations. Higher synergy is represented graphically when the isobologram line (red) approaches the origin and quantified numerically by the Loewe score (higher Loewe score means more synergy).

(b) Combining RLY-1971 with the KRASG12C-specific inhibitor ARS-1620 in a cellular proliferation assay in the KRASG12C mutant NCIH23 lung cancer cell line shows the relationship is synergistic based on the isobologram line (blue) and high Loewe score (11.5). Cells were plated at a density of 2000 cells per well in ultra-low attachment 384-well plates (Corning) and allowed to form three-dimensional structures at 37°C, 5% CO2 incubator for 48 hours. After a 48 hour incubation period, cells were then treated in triplicate with serial 3-fold dilutions of a matrix of both compounds in complete growth media and cells were returned to incubator for an additional 120 hours. CellTiter-Glo 3D reagent (Promega) was then added into each well and incubated are room temperature for 30 minutes followed by reading on EnVision Reader (Perkin Elmer) using standard conditions. Assay data was normalized to DMSO values, and dose response curve fitting and Loewe synergy score were determined using Genedata analyzer.

(c) The synergistic effect of both compounds (1uM of ARS-1620 and 100nM of RLY-1971) can be observed by measuring the impact on ERK signaling (pERK) after 24 hours. To treat cells with compound and collect lysates for characterization, 2000 cells were plated per well in ultralow attachment 384-well plates (Corning) and allowed to form three-dimensional structures at 37°C, 5% CO2 incubator for 48 hours. After incubation and growth of three-dimensional structures compounds were added to the cells either as single compounds or in combination with the final concentrations for test compounds are 1uM ARS-1620 and 0.1uM RLY-1971. Cells were returned to 37°C, 5% CO2 incubator for 24 hours. Cells are collected, lysed, and run on WES (Protein Simple) with antibodies directed toward the antigens of interest. Data was analyzed using Compass software (Protein Simple).

In addition to the therapeutic opportunity associated with combining with other targeted therapies, we believe RLY-1971 has the potential to be a combination partner with the product candidates in our own precision oncology portfolio (RLY-4008 and RLY-PI3K1047).

Our clinical development plan

Our clinical development plan aims to advance RLY-1971 as a monotherapy in SHP2-dependent tumors and in combination with other targeted agents to prevent and overcome adaptive resistance mechanisms in order to achieve more durable clinical benefit. First, we will look to rapidly define the optimal dose and schedule of RLY-1971 as a monotherapy and then we will pursue rational studies including combinations.

 

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In the first quarter of 2020, we began evaluating the safety and tolerability of RLY-1971 in a first-in-human dose escalation study in patients with advanced or metastatic solid tumors. We plan to enroll approximately 52 patients in this study. The primary objectives are to determine the maximum tolerated dose (MTD)/recommended phase 2 dose (RP2D), and to define the overall safety profile of RLY-1971. Secondary objectives are to assess the pharmacokinetics, pharmacodynamics, and to explore preliminary anti-tumor activity of RLY-1971. Patients will receive RLY-1971 administered orally, once daily. Once daily oral dosing was selected based on projected human pharmacokinetics and exposures calculated from multi-species pharmacokinetics and allometric scaling.

The first-in-human monotherapy data will facilitate subsequent clinical evaluation and development of RLY-1971 as a monotherapy for patients with SHP2-dependent tumors or in combination with other targeted therapies in indications where SHP2 inhibition may exert synergistic antitumor effects. This may include combinations with selected approved receptor tyrosine kinase inhibitors (e.g., inhibitors of ALK, EGFR or HER2), MAPK/RAS pathway inhibitors (including KRAS G12C inhibitors) and/or combinations with investigational agents being developed by Relay Therapeutics, including RLY-4008 and RLY-PI3K1047.

Development of RLY-1971 in monotherapy and combination therapy indications will require identification of appropriate patients for treatment using molecular diagnostic tests. In early phase clinical trials, patients will be identified using local testing performed at clinical trial sites, with retrospective centralized testing to confirm the tumor genetic status. In later phase trials, we will likely collaborate with a diagnostic partner to identify patients for clinical trial enrollment using an analytically validated investigational molecular diagnostic. The tumor genetic contexts that we are considering for development of RLY-1971 can currently be detected using FDA-approved next generation sequencing based panel diagnostics (e.g. Foundation One, Guardant 360).

RLY-4008, a selective inhibitor of FGFR2

Overview

RLY-4008 is designed to be an oral, small molecule, selective inhibitor of fibroblast growth factor receptor 2, or FGFR2, a receptor tyrosine kinase that is frequently altered in cancer. FGFR2 is one of four members of the FGFR family, a set of closely related proteins with highly similar protein sequences and properties. RLY-4008 minimally inhibits targets other than FGFR2 and demonstrates FGFR2-dependent cell-killing in cancer cell lines. We plan to initiate a Phase 1 clinical trial for RLY-4008 in patients having solid tumors with oncogenic FGFR2 alterations in the second half of 2020. We believe FGFR2-mediated cancers affect approximately 8,000 late-line patients annually in the U.S., of which fusions represent approximately 2,700, amplifications approximately 1,600, and other mutations approximately 3,800. In the future, if RLY-4008 advances to earlier lines of treatment, we believe it could potentially address approximately 20,000 patients annually in the U.S.

Role of FGFR in cellular proliferation and differentiation

Each of the FGFRs has an important role in normal physiology and the inhibition of FGFR2 is a well-validated pathway in disrupting cancer proliferation and growth. Two non-selective FGFR inhibitors have been approved (erdafitinib and pemigatinib) and several are in clinical development. However, these inhibitors as a class cause several dose-limiting, FGFR2-unrelated toxicities in patients leading to dose reductions and altered dosing schedules. One of the most common dose limiting toxicities of these agents is hyperphosphatemia, which causes soft tissue mineralization and requires active management. Hyperphosphatemia has been shown to be driven by inhibition of another member of the FGFR family known as FGFR1 (Figure 15).

 

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Figure 15: RLY-4008 is a selective inhibitor of FGFR2. FGFR1 is required for phosphate resorption in the kidney. Inhibition of FGFR1 by non-selective FGFR inhibitors results in increased serum phosphate and toxicity. This results in decreased efficacy by requiring dose reductions.

 

 

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We believe that the toxicity attributable to inhibition of other FGFR family members, and other closely related kinases, limits the ability of the non-selective FGFR inhibitors to achieve optimal and durable inhibition of FGFR2, limiting the efficacy of these agents in patients with FGFR2-altered tumors. In addition to the lack of selectivity, these inhibitors are unable to overcome on-target resistance, which has been observed in patients treated with non-selective FGFR inhibitors. Our belief is that a selective inhibitor of FGFR2 that retains activity against resistance mutations will enable improved clinical efficacy. This hypothesis is supported by an example in a similar context involving kinase inhibitors and the oncogene RET. In one study of cabozantinib, a multi-kinase inhibitor, in patients with RET gene fusions, a response rate of 28% was observed whereas in a separate study with a selective RET inhibitor, selpercatinib (LOXO-292), a 68% response rate was observed.

Limitations of current FGFR inhibitors

Non-selective FGFR inhibitors produced by other companies have demonstrated clinical proof-of-concept in patients with intrahepatic cholangiocarcinoma, or ICC, bearing FGFR2 gene fusions. These gene fusions result in a constitutively active FGFR2, which promotes oncogenic transformation. Genetic alterations in FGFR2, including gene fusions, amplifications, and point mutations, are also found in other solid tumor indications.

Patients with genetic alterations in FGFR2, primarily gene fusions in ICC, have been treated with FGFR inhibitors in investigational clinical trials. To date, these trials provide support for the critical role of FGFR2 for tumor survival with a response rate of up to 36% (Figure 16). While a 36% response rate is a welcomed improvement compared to historical controls, it is short of the responses obtained with therapies that target other receptor tyrosine kinase fusions in cancer. A key limiting factor for existing FGFR therapies is that, as a class, they are associated with a dose-limiting side effect, hyperphosphatemia (buildup of excess phosphate in the bloodstream), which has been shown to be caused by FGFR1 inhibition.

 

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Figure 16: Hyperphosphatemia is a dose-limiting adverse event associated with non-selective FGFR inhibitors.

 

 

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ICC disease background

Intrahepatic Cholangiocarcinoma (ICC) is a form of cancer that originates in the bile ducts of the liver. ICC is a rare tumor, accounting for 3% of worldwide gastrointestinal malignancies. Patients diagnosed with ICC are routinely treated off-label with chemotherapeutic agents such as gemcitabine and cisplatin. There are no approved therapies for ICC. Complete surgical resection remains the only potential curative option but is associated with a substantial risk of post-operative morbidity and mortality, and recurrence is common. The median overall survival for all patients diagnosed with ICC is reported to be 16.1 months. The median overall survival for patients diagnosed with late stage disease is less than one year.

Our solution, RLY-4008

RLY-4008 is an oral, small molecule inhibitor of FGFR2 designed to inhibit FGFR2 with high potency while minimizing inhibition of other FGFR family members. In our initial assessment of the challenge of obtaining a highly selective inhibitor of FGFR2, we determined that there is a high degree of structural similarity between FGFR1 and FGFR2 when comparing static X-ray crystal structures. This similarity precluded the development of a structure-based selectivity hypothesis using conventional approaches.

We therefore set out to identify motion-based differences between FGFR2 and other FGFR family members by applying our expertise in computational modeling and experimental structural analyses. We discovered that there were segments of FGFR2 which displayed differential dynamics compared to the corresponding segments of FGFR1 (Figure 17). We predicted these dynamic differences could be exploited to achieve selective inhibition of FGFR2.

 

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Figure 17: Using MD simulations, we predicted that a segment in FGFR1 was more dynamic than FGFR2, as represented by the schematic below where the segment opens “Up” more frequently in FGFR1 compared to FGFR2.

 

 

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We embarked on a process using computational methods such as long timescale molecular dynamics simulations, virtual docking and specialized experimental techniques to design, select, synthesize, and evaluate inhibitors. Our discovery process culminated with the selection of RLY-4008 as a product candidate based on its ability to meet our predetermined criteria for potency, selectivity and activity in animal models.

As described below, we have conducted a multitude of preclinical experiments benchmarking RLY-4008 against approved molecules as well as molecules in clinical development. We believe that these experiments have demonstrated that RLY-4008 could potentially be a differentiated molecule warranting testing in clinical studies. Ultimately, clinical studies will be needed to confirm the differentiation, if any, of RLY-4008 from the molecules benchmarked against the below and unless we conduct head to head studies of RLY-4008 against other molecules as part of our clinical trials, we would not expect to rely upon RLY-4008’s potential differentiation from other molecules in connection with submissions to the FDA or other regulatory agencies, as applicable, for approval or otherwise.

We demonstrated in enzymatic and cellular assays that RLY-4008 was over 200-fold more potent at inhibiting FGFR2 compared to FGFR1 (Figure 18). This is in contrast to pemigatinib, erdafitinib, infigratinib, and TAS-120, which exhibit little selectivity between these FGFR family members. In addition to selectivity over FGFR1, RLY-4008 is also selective over the other members of the FGFR family, FGFR3 (>80-fold) and FGFR4 (>4,000 fold) in biochemical assays.

Figure 18: RLY-4008 is selective for FGFR2 over FGFR1.

 

 

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The selectivity of RLY-4008 for FGFR2 over FGFR1 was determined by comparing the potency (IC50) of RLY-4008 and other clinical non-selective FGFR inhibitors in biochemical assays using Caliper technology (PerkinElmer). Human FGFR1 and FGFR2 (Carna Biosciences) were incubated with a peptide substrate (PerkinElmer) in the presence of varying concentrations of the indicated inhibitor for 30 minutes. Reactions were carried out in the presence of 100 mM ATP and 10 mM MgCl2 for 90 minutes. Non-selective FGFR inhibitors were obtained from vendors that provide compounds based on chemical structures published in the patent literature (Cayman Chemical, MedChemExpress, Selleckchem). Fold change in potency was calculated using the average IC50 obtained for each inhibitor in three independent experiments. RLY-4008 showed greater than 200-fold selectivity for FGFR2 over FGFR1.

RLY-4008 has minimal inhibition of targets other than FGFR2 and demonstrates FGFR2-dependent cell-killing in cancer cell lines. It has bioavailability suitable for oral dosing, is metabolically stable, and has demonstrated good pharmacokinetics in preclinical in vivo models. Human pharmacokinetic projections are consistent with once or twice daily oral dosing. RLY-4008 is predicted to have low risk of drug-drug interactions based on weak inhibition of drug metabolizing enzymes. It is readily synthesized in bulk, can be formulated for oral delivery, and exposures at the highest non-severely toxic dose were several fold in excess of the predicted human efficacious exposures.

In a patient-derived xenograft (PDX) mouse model of ICC harboring a FGFR2 fusion, treatment with RLY-4008 led to tumor regression at doses as low as 10 mg/kg delivered twice a day (Figure 19). Non-selective inhibitors, pemigatinib and TAS-120, also resulted in tumor volume reductions in this model when dosed at levels selected to match their human exposure in clinical studies.

To preclinically validate our effort to engineer selectivity for FGFR2 as a means of reducing the risk of hyperphosphatemia, we examined the effect of RLY-4008 in an industry standard rat model of hyperphosphatemia. No evidence of hyperphosphatemia was seen with doses of RLY-4008 that resulted in exposures leading to tumor regression in our FGFR2 gene fusion ICC PDX mouse model (Figure 19). By contrast, when dosed at levels selected to match human exposure in clinical studies, TAS-120 led to increased hyperphosphatemia. Additionally, in 28-day GLP toxicology studies in rats and dogs, neither hyperphosphatemia nor tissue mineralization were observed with RLY-4008 at exposures in the animal corresponding to the predicted human efficacious exposures.

 

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Figure 19: RLY-4008 leads to tumor regression in an FGFR2 fusion positive ICC PDX model and does not cause hyperphosphatemia.

 

 

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(a) Anti-tumor activity of RLY-4008 dosed twice daily (BID) by oral administration in an FGFR2 fusion-positive ICC PDX model. RLY-4008 induced dose-dependent regression when administered at 10 or 30 mpk BID. TAS-120 at 2 mpk TID (red) and pemigatinib at 0.5 mpk BID (pink) were dosed at levels selected to match their clinical exposures. Data points indicate mean tumor volume (n=6 per group) and error bars represent standard error of the mean. All treatment groups are statistically significant when compared to vehicle with p<0.001 as determined by two-sided t-test.

(b) Serum phosphate measurements in rats dosed twice daily with RLY-4008 (blue) or TAS-120 (red) by oral administration. Doses of RLY-4008 (100 and 200 mpk BID) resulting in exposures leading to tumor regression in our FGFR2 gene fusion ICC PDX model do not cause significant hyperphosphatemia. Doses of TAS-120 (3 mpk BID and 10 mpk QD) selected to match human exposures in clinical studies cause significant hyperphosphatemia. Data indicate the mean serum phosphate level (n=5 per group), and error bars represent standard deviation. TAS-120 treatment groups are statistically significant when compared to vehicle with p<0.01 as determined by one-way ANOVA.

Another predicted advantage of RLY-4008 concerns resistance mutations. These new mutations in FGFR2 arise during treatment, reducing the potency of non-selective FGFR inhibitors and making tumors resistant to treatment. In the limited resistance studies to date, multiple FGFR2 resistance mutations have been reported, with gatekeeper mutations at position V565 being most common. Gatekeeper mutations sterically block access to the binding site of non-selective FGFR inhibitors. Among gatekeeper mutations, V565F is the most prevalent. In preclinical experiments, we have shown that RLY-4008 retains activity against a broad panel of mutations known to be associated with resistance to non-selective FGFR inhibitors (Figure 20). For example, while the V565F or V565L gatekeeper mutations are resistant to all non-selective FGFR inhibitors we tested, RLY-4008 retains activity against these resistance mutations with no loss in potency.

 

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Figure 20: RLY-4008 retains potency against common FGFR2 resistance mutations.

 

 

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Heatmap showing fold change in potency (IC50) on FGFR2 mutations compared to FGFR2 WT. Human FGFR2 cDNA (NCBI Reference Sequence: NM_022970.3) was cloned into pLenti-P2A-Puro vector, site-directed mutagenesis was performed for the indicated mutations, and plasmid purification was conducted at GenScript. Lentivirus for each vector was prepared using Lenti-vpak Lentiviral Packaging Kit, and FGFR2 WT or FGFR2 mutants were expressed in HEK-293 cells via lentiviral transduction. Cells were incubated with various concentrations of the indicated inhibitors for 2 hours and potency of FGFR2 was determined using a pFGFR2 (Tyr 653/654) HTRF assay (Cisbio) per the manufacter’s protocol. Colors indicate the fold loss in potency for the mutant FGFR2 vs WT. Gatekeeper mutations block access to the binding site of non-selective inhibitors. Molecular brake mutations disrupt an autoinhibitory conformation of FGFR2, resulting in kinase activation. Other mutations listed have various reported mechanisms of kinase activation.

Further supporting the activity of RLY-4008 against FGFR2 resistance mutations, we used genetic engineering to introduce the V565F gatekeeper mutation in FGFR2 fusion positive ICC cells. The ability of non-selective FGFR inhibitors or RLY-4008 to inhibit the proliferation of these cells was then tested. RLY-4008 was more potent in V565F mutant cells compared to non-selective FGFR inhibitors, with an IC50 of 760 pM (Figure 21).

Figure 21: RLY-4008 retains potency on the FGFR2 gatekeeper mutation V565F in a cellular proliferation assay.

 

 

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Anti-proliferative effect of RLY-4008 and non-selective FGFR inhibitors in V565F mutant FGFR2 fusion-positive ICC cells tested in a 2D proliferation assay. The FGFR2 V565F mutation was introduced into an FGFR2 fusion-

 

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positive ICC cell line via CRISPR-mediated gene editing and confirmed by sequencing. Cells were incubated in the presence of the indicated concentrations of inhibitors for 120 h and assayed for viability with CellTiter-Glo (Promega). The hill slope sigmoidal four-parameter logistic curve (4PL) in GraphPad Prism was used to generate dose-response curves from normalized measurements of viability. Data points indicate the average of duplicate samples and error bars represent standard deviation. RLY-4008 dose-response curve is statistically significant when compared to pan-FGFRi dose-response curves with p<0.001 as determined by two-way ANOVA.

RLY-4008 was able to achieve in vivo efficacy in mouse models of FGFR2-fusion gastric cancer, FGFR2-amplified gastric cancer, and FGFR2-mutant endometrial cancer. Treatment with RLY-4008 led to tumor regression at 3 mg/kg delivered twice a day in a FGFR2 gene fusion gastric cancer model, and at 10 mg/kg delivered twice a day in a FGFR2-amplified gastric cancer or FGFR2-mutant endometrial cancer models (Figure 22). All of these doses result in exposures that do not cause hyperphosphatemia in an industry standard rat model. Importantly, RLY-4008 achieved complete regression in an FGFR2-mutant endometrial cancer model (AN3CA) harboring the N550K mutation that reduced the potency of pemigatinib by 185-fold.

Figure 22: RLY-4008 leads to tumor regression in an FGFR2-fusion gastric cancer PDX, the FGFR2-amplified gastric cancer SNU16 xenograft model, and the FGFR2 N550K-mutant endometrial cancer AN3CA xenograft model.

 

 

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Anti-tumor activity of RLY-4008 dosed twice daily (BID) by oral administration in (a) an FGFR2 fusion gastric cancer PDX model, (b) the FGFR2-amplified SNU16 gastric cancer xenograft model, and (c) the FGFR2 K310R; N550K mutant AN3CA endometrial cancer xenograft model. Data points indicate mean tumor volume and error bars represent standard error of the mean. Statistical analyses were performed using one-way ANOVA. (a) n=8 per group; treatment groups are statistically significant when compared to vehicle with p<0.001. (b) n=7 per group; treatment groups are statistically significant when compared to vehicle with p=0.001 for 10 mpk BID group and p<0.001 for 30 mpk BID group. (c) n=8 per group; two high-dose groups are statistically significant when compared to vehicle with p=0.003 for 30 mpk BID group and p=0.005 for 10 mpk BID group. p=0.627 for 3 mpk BID group.

To further evaluate the activity of RLY-4008 against FGFR2 resistance mutations, the in vivo activity of RLY-4008 was compared to pemigatinib in the AN3CA endometrial cancer model. As described above, this model harbors the FGFR2 N550K mutation, which reduces the potency of pemigatinib by 185-fold. RLY-4008 was able to achieve complete regression in this model at doses resulting in exposures that do not cause hyperphosphatemia in an industry standard rat model. By contrast, when dosed at levels selected to match human exposure in clinical studies, pemigatinib showed no anti-tumor activity (Figure 23).

 

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Figure 23: RLY-4008 leads to complete tumor regression in the FGFR2 N550K-mutant endometrial cancer AN3CA xenograft model, while pemigatinib is inactive.

 

 

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Anti-tumor activity of RLY-4008 and pemigatinib dosed twice daily (BID) by oral administration in the FGFR2 K310R;N550K mutant AN3CA endometrial cancer xenograft model. RLY-4008 induced complete regression when administered at 30 mpk BID. Pemigatinib was dosed at 0.5 mpk BID, a dose selected to match clinical exposure. (a) Data points indicate mean tumor volume (n=8 per group) and error bars represent standard error of the mean. RLY-4008 cohort is statistically significant when compared to vehicle with p=0.009 as determined by one-way ANOVA. (b) Waterfall plot of individual end-of-study (Day 14) tumors; each bar represents one animal. Tumor volume is expressed as percentage change relative to tumor volume on Day 0.

Although RLY-4008 retains activity preclinically against common FGFR2 resistance mutations, tumors may develop bypass resistance by shifting growth factor signaling to an alternate receptor, rendering them less sensitive to the targeted therapy. SHP2, a protein tyrosine phosphatase, regulates the activity of multiple RTKs, and may be an effective way to overcome bypass resistance to RLY-4008. To demonstrate the potential for RLY-1971 as a combination partner for RLY-4008 we tested a population of four patient-derived FGFR2-fusion positive ICC cell lines. These cells were derived from patients that initially responded to non-selective FGFR inhibitors, but then acquired bypass resistance to FGFR inhibition during their treatment. While these cell lines were resistant to treatment with our FGFR2 inhibitor RLY-4008, all resistant cells were sensitive to RLY-1971 with IC50s of less than 100 nM (Figure 24). Given the role of SHP2 in mediating bypass resistance to multiple targeted therapies, we intend to investigate the clinical potential of the combination of RLY-1971 with RLY-4008.

 

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Figure 24: RLY-1971 overcomes bypass resistance to FGFR2 inhibition in patient-derived FGFR2 fusion positive ICC cell lines.

 

 

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Anti-proliferative effect of RLY-1971 in patient-derived FGFR2 fusion positive ICC cells tested in a 2D proliferation assay. These cell models were derived from patients that initially responded to non-selective FGFR inhibitors, but then progressed during their treatment (the specific FGFR2 fusion present in the cells is indicated). These cells are resistant to treatment with our FGFR2 inhibitor RLY-4008 (blue lines), whereas RLY-1971 demonstrates anti-proliferative and cytotoxic activity (red lines), with IC50s as follows: (a) 13 nM, (b) 20 nM, (c) 39 nM, and (d) 91 nM. The dotted line at 0 indicates complete growth suppression, with values below 0 indicating cytotoxicity.

Our clinical development plan

The RLY-4008 clinical development plan seeks to leverage the unique potential for enhanced tolerability and broad FGFR2 mutational coverage to rapidly generate proof-of-concept in molecularly defined patient subsets.

We plan to initiate a first-in-human clinical trial for RLY-4008 in solid tumor patients enriched for oncogenic FGFR2 alterations in the second half of 2020. The primary objectives are to determine the maximum tolerated dose (MTD)/recommended phase 2 dose (RP2D) and to define the overall safety profile of RLY-4008. Secondary objectives are to assess the pharmacokinetics, pharmacodynamics and to explore anti-tumor activity of RLY-4008. Patients will initially receive RLY-4008 administered orally, twice daily.

The first trial will employ a 2-part dose escalation/dose-expansion design. Given RLY-4008’s strong preclinical activity against both primary oncogenic alterations and acquired pan-FGFR inhibitor resistance mutations, the

 

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trial will include patients that are naïve to pan-FGFR inhibitors, as well as those that have progressed on pan-FGFR inhibitors. Observation of significant clinical activity in one or more patient populations in this exploratory first-in-human trial would support further trials to confirm the risk-benefit profile of RLY-4008 in patients with oncogenic FGFR2 alterations. These trials may include continued evaluation of RLY-4008 as a monotherapy in single arm trials in patient populations without an established standard-of-care therapy available, which could be used to support filings for marketing authorization for RLY-4008. The development program for RLY-4008 may also include randomized trials of RLY-4008 compared to a relevant standard-of-care therapy.

Figure 25: Planned first-in-human clinical trial for RLY-4008

 

 

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Development of RLY-4008 will require identification of appropriate patients for treatment with FGFR2 alterations using molecular diagnostic tests. In early phase clinical trials, patients will be identified using local testing performed at clinical trial sites, with retrospective centralized testing to confirm the tumor genetic status. In later phase trials, Relay Therapeutics will likely collaborate with a diagnostic partner to identify patients for clinical trial enrollment using an analytically validated investigational molecular diagnostic. The tumor genetic contexts that we are considering for development of RLY-4008 (FGFR2 fusions, amplifications and mutations) can currently be detected using FDA-approved next generation sequencing based panel diagnostics (e.g. Foundation One, Guardant 360).

Mutant-PI3Kα Inhibitor Programs

Overview

RLY-PI3K1047 is the lead compound in our franchise of programs targeting cancer-associated mutant variants of phosphoinositide 3-kinase alpha, or PI3Kα. RLY-PI3K1047 is a small molecule inhibitor of PI3Kα that we designed to specifically target PI3Kα H1047X mutant via a previously undescribed allosteric mechanism. Oral dosing of RLY-PI3K1047 resulted in tumor growth inhibition in a mouse xenograft model of PI3Kα H1047R mutant carcinoma. We expect to begin IND-enabling studies for a differentiated PI3Kα H1047X mutant-selective inhibitor in 2021. We believe PI3Kα H1047X mutant cancers affect approximately 10,000 late-line patients annually in the U.S. In the future, if RLY-PI3K1047 advances to earlier lines of treatment, it could potentially address approximately 48,000 patients annually in the U.S.

Two additional mutations of interest for our PI3Kα franchise are E542X and E545X. We estimate there are approximately 15,000 late-line and 57,000 total patients annually in the United States who might benefit from a PI3Kα targeted inhibitor that targets the mutations at E542 and E545.

 

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Figure 26: PI3Kα addressable patient populations

 

 

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1) Estimated frequency percentages are based on counts of known/likely functional alterations in the Foundation Medicine Insights database. 2) Based on projected cancer deaths in all solid tumors from the National Cancer Society’s SEER database as a proxy for late-line cancer patient incidence. 3) These data are based on projections from the National Cancer Society’s SEER program for estimated new cases of advanced solid tumors.

Role of PI3Kα in cellular proliferation and differentiation

Mutations at amino acid H1047 of PI3Kα are among the most common kinase mutations in cancer and are believed to be a primary driver of carcinogenesis. There are no approved therapies that selectively target mutant versions of PI3Kα. Inhibitors that are not mutant-selective are associated with dose-limiting toxicities resulting in frequent discontinuations that restrict their therapeutic potential. Additionally, these inhibitors also can inhibit other isoforms of PI3K, including PI3Kd, which can further result in toxicity. Our belief is that selectively targeting mutant PI3Kα could result in improved target inhibition and increased clinical efficacy (Figure 27).

 

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Figure 27: RLY-PI3K1047 is a selective inhibitor of H1047X mutant PI3Kα. WT PI3Kα plays a critical role in normal cellular signaling and function, including glucose uptake and insulin regulation. Inhibition of WT PI3Kα by non-mutant selective PI3K inhibitors results in hyperglycemia, hyperinsulinemia and other toxicities. This results in decreased efficacy by requiring dose reductions.

 

 

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Leveraging our structural biology capabilities, we solved what we believe to be the first full-length structure of PI3Kα using cyrogenic electron microscopy (Cryo-EM) and utilized a range of experimental techniques to understand both H1047R mutant and wild-type conformations. We used this rich experimental data set to power molecular dynamics simulations of H1047R mutant PI3Kα to identify a series of dynamic structural changes caused by the mutation, which were not elucidated by prior structural studies of either H1047R mutant or wild-type PI3Kα. The lead compound in this program, which we refer to as RLY-PI3K1047, was designed to exploit these dynamic differences and bind to a novel allosteric site to achieve heightened mutant selectivity. We intend to initiate IND-enabling studies for our first PI3Kα mutant selective inhibitor, which is focused on H1047X, in 2021.

PI3Kα mutations drive the development of cancer

PI3Kα is the central regulator of a cellular signaling pathway that has been linked to a diverse group of cellular functions related to cancer including cell growth, proliferation and survival. Data collected as a part of Foundation Medicine Insights and other data sources identifies PI3Kα as the most frequently mutated kinase in cancer., (Figure 28).

 

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Figure 28: PI3Kα is a common mutation in cancer.

 

 

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Approximately 80% of the mutations in PI3Kα cluster at three amino acids, or locations. These are E542 and E545 in the helical domain, and H1047 in the kinase domain. The most common mutation at amino acid H1047 is H1047R, but other H1047 mutations (such as H1047L, H1047Y, and others) are also observed across cancers. The abbreviation “H1047X” is used to refer to any H1047 mutation. Similarly, the most common mutations in the helical domain are E542K and E545K, but other mutations (such as E542Q, E545A, and others) are also observed across cancers. The abbreviation “E542/E545X” is used to refer to any helical domain mutation. The H1047R mutation has been shown to induce extensive and diverse cellular changes in pre-clinical models of breast cancer, demonstrating how a single mutation at amino acid H1047 can have large consequences and induce a cancer phenotype. The E5452K and E545K mutations have also been shown to increase PI3Kα activity, promote cell growth and invasion in vitro, and induce tumorigenesis in vivo. While H1047X and E542/E545X mutations have been shown to result in aberrant PI3Kα activity, they do so through distinct biological mechanisms.

Limitations of current PI3Kα inhibitors

Given the large number of patients with PI3Kα mutations, several small-molecule inhibitors of PI3Kα are in development for oncology indications. However, these inhibitors have to our knowledge been largely ineffective when used as monotherapy in cancer. All of these inhibitors target the catalytic (orthosteric) site of PI3Kα. One challenge faced by these inhibitors has been drug intolerance, especially at the high doses routinely used in cancer trials. Alpelisib, marketed as Piqray® by Novartis, is the only FDA-approved inhibitor for cancers with mutated PI3Kα. However, alpelisib is not a selective inhibitor for mutant forms of PI3Kα; it is a potent inhibitor of both the wild-type form of PI3Kα as well as the mutant form. Nonetheless, alpelisib is approved to be used in combination with fulvestrant, an estrogen receptor degrader, in PI3Kα-mutated breast cancer. When used in combination with fulvestrant, alpelisib was associated with significant adverse events, including severe hypersensitivity, diarrhea and severe pneumonitis. Hyperglycemia was reported in 64% of patients and over 36% of patients experienced Grade 3 or Grade 4 hyperglycemia. To manage hyperglycemia, insulin along with other anti-diabetic medication was used in 87% of patients. Gastrointestinal toxicity was reported in 93% of patients, with 9% experiencing Grade 3 gastrointestinal toxicity. Additionally, 36% of patients experienced rash, with

 

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10% experiencing Grade 3 rash. The combination of these adverse events resulted in 64% of patients requiring dose reductions and 25% of patients discontinuing treatment. Despite 11 month progression-free survival (PFS) in the SOLAR-1 Phase 3 trial of alpelisib, the median duration of dosing in the alpelisib arm was 5.5 months, indicating the majority of patients discontinued dosing prior to disease progression. The observed hyperglycemia is believed to be caused by inhibition of wild-type PI3Kα and are therefore is considered an on-target toxicity for alpelisib. In addition to causing dose-limiting toxicity, systemic glucose-insulin feedback caused by inhibiting wild-type PI3K results in elevated insulin that can activate PI3K signaling and subsequently limit the efficacy of PI3K inhibitors. While these factors limit the clinical utility of alpelisib, these data nonetheless establish mutant PI3Kα as a clinically validated target in breast cancer. Because these toxicities result in suboptimal doses and dosing schedules that result in incomplete PI3Kα inhibition, we believe that a H1047X or E542/E545K mutant selective inhibitor will enable improved target inhibition, and therefore improved clinical efficacy. Additionally, overcoming hyperinsulinemia and hyperglycemia could increase efficacy by preventing insulin feedback that activates PI3K signaling.

Our solution, mutant selective inhibition of PI3Kα

Given the existence of mutations in PI3Kα with different biological mechanisms underlying aberrant activity, we believe there are multiple opportunities to develop distinct mutant selective inhibitors of PI3Kα. Addressing the challenge of mutant selectivity required us to express and then solve the structure of the full-length PI3Kα protein. This structure, which to our knowledge had previously not been solved, represented a technical challenge because PI3Kα is a membrane-bound protein. This type of protein is typically difficult both to purify in large quantities and to crystallize. Nonetheless, we were able to obtain the structure of full-length PI3Kα using Cryo-EM. The three-dimensional structure of PI3Kα was determined by collecting data from two-dimensional electron microscopic projections of thin layers of protein. The resulting three-dimensional protein structure provided us with fundamental insights into the mechanism of activation of PI3Kα and the impact of mutations on its function. Through the integration of these structural insights with a combination of experimental and computational techniques, our aim is to develop a franchise of mutant selective PI3Kα inhibitors. The first lead molecule derived from these efforts, which is focused on H1047X, is described below.

Current lead molecule for PI3K-H1047X Mutations, RLY-PI3K1047

RLY-PI3K1047 is a small molecule inhibitor of PI3Kα that we designed to specifically target PI3Kα H1047X mutant via a previously undescribed allosteric mechanism. As described above, adverse events such as hyperglycemia are common among PI3K inhibitors that have been tested in the clinic, leading us to focus on identifying an inhibitor that bound to a novel site on PI3Kα. Our intent was to obtain a molecule that could selectively bind to the mutant form of PI3Kα.

Structural analyses of PI3Kα showed that mutations at amino acid H1047 cause structural alterations that are located away from the catalytic site, the place where other PI3K inhibitors bind. We then performed long timescale molecular dynamics simulations of wild-type and H1047R mutant PI3Kα to identify a series of dynamic structural changes caused by the mutation that are not present in the wild-type protein.

Utilizing this structural information, we designed inhibitors to target a novel allosteric binding site on the PI3Kα H1047R mutant protein that our computational and experimental approaches exposed. This process led to the discovery of RLY-PI3K1047, which is approximately 5-fold selective for the H1047R mutant form of PI3Kα compared to the wild-type protein in biochemical assays (Figure 29). In contrast, alpelisib and GDC-0077 (an orthosteric PI3Kα inhibitor currently in development) biochemically inhibited the mutant and wild-type proteins with approximately equivalent potency. In addition, we found that RLY-PI3K1047 is selective for PI3Kα over other PI3K isoforms, including PI3Kß and PI3Kd, showing no measurable inhibition. In contrast, alpelisib and GDC-0077 inhibited the PI3Kd isoform with IC50 < 1µM. Given toxicities associated with inhibitors that target PI3K isoforms other than PI3Kα and GDC-0077, including gastrointestinal side effects and transaminitis, we believe that RLY-PI3K1047 provides a dual advantage of isoform and mutant selectivity, which could result in increased clinical efficacy compared alpelisib or other orthosteric PI3Kα inhibitors.

 

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Figure 29: Compared to alpelisib and GDC-0077, RLY-PI3K1047 is more selective for the PI3Kα mutant (H1047R) compared to wild-type (a) and more selective for the PI3Kα isoform compared to other PI3K isoforms PI3Kß and PI3Kd (b).

 

 

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Biochemical potency for RLY-PI3K1047 compared to alpelisib and GDC-0077. IC50 values are shown for inhibition of the PI3Kα mutant (H1047R) compared to wild-type (a) and for PI3Kα compared to other PI3K isoforms (b). Phosphotransfer activity (PtdIns(3,4,5)P3 production in liposomes using diC8-PtdIns(4,5)P2 as a substrate in the presence of 100uM ATP and titrated compounds after a 120min incubation) was measured by ADP-Glo. All samples were run in duplicate and data represent the mean.

This increased biochemical potency for PI3Kα H1047R mutant protein translates into an increased potency in cellular pharmacodynamic assays. RLY-PI3K1047 was approximately 10-fold more potent for inhibition of phosphorylated AKT (pAKT), a key substrate of PI3Kα, in transformed breast epithelial cells expressing PI3Kα H1047R compared to the same cells expressing wild-type PI3Kα. RTX-2, an example of another lead compound generated in this program, also showed approximately 10-fold increased potency for inhibition of pAKT in transformed breast epithelial cells expressing PI3Kα H1047R (Figure 30). In contrast, alpelisib and GDC-0077 (an orthosteric PI3Kα inhibitor currently in development) showed approximately equal potencies in cells expressing either the mutant or wild-type forms.

 

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Figure 30: Compared to other clinical PI3Kα inhibitors (alpelisib and GDC-0077), Relay compounds more potently inhibits pAKT in cells expressing H1047R mutant PI3Kα compared to cells expressing wild-type PI3Kα.

 

 

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Inhibition of pAKT by Relay compounds RLY-PI3K1047 and RTX-2 in a pharmacodynamic assay. MCF10A immortalized breast epithelial cells endogenously expressing wild-type PI3Kα (a) or engineered to express the PI3Kα H1047R mutation (b) were treated with alpelisib, GDC-0077 or Relay compounds. After 2 hours cell lysates were collected and the impact on pAKT levels was assessed using an HTRF assay (three fold dilution dose response was run in duplicate, data represented as mean +/- standard error of the mean). Half maximal effective concentrations (EC50) from the dose response curves (a, b) are plotted in (c).

The selectivity of RLY-PI3K1047 was then evaluated in vivo. Oral dosing of RLY-PI3K1047 resulted in tumor growth inhibition in a mouse xenograft model of PI3Kα H1047R carcinoma at doses of 100 mg/kg delivered once or twice daily or 50 mg/kg delivered twice daily. (Figure 31). An important validation of our efforts to avoid the dose-limiting toxicities associated with other PI3K inhibitors is the effect of RLY-PI3K1047 on hyperinsulinemia. As discussed above, hyperinsulinemia and hyperglycemia can lead to decreased efficacy of PI3K inhibitors. In a study evaluating the effects of alpelisib or RLY-PI3K1047 treatment on insulin levels, RLY-PI3K1047 led to minimal changes in serum insulin (p=0.116 compared to vehicle by 2-way ANOVA) when administered orally at all doses tested for the duration of the study. In contrast, alpelisib treatment resulted in increases in serum insulin (p<0.0001 compared to vehicle by 2-way ANOVA). Additionally, in an oral glucose tolerance test (OGTT) assessing insulin response after dosing of compounds, alpelisib treatment at 50 mg/kg once daily lead to larger increases in serum insulin compared to all doses of RLY-PI3K1047 tested (p<0.0001 by 2-way ANOVA).

 

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Figure 31: RLY-PI3K1047 inhibits tumor growth in vivo with minimal increases in serum insulin levels.

 

 

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Anti-tumor activity and impact on serum insulin levels in response to treatment with RLY-PI3K1047.

(a) The CAL33 xenograft model was dosed once or twice daily (12 hour interval) with RLY-PI3K1047 by oral administration or alpelisib once daily by oral administration, and tumor growth was evaluated. Data represent mean tumor volume over time, and error bars represent standard error of the mean. (n=8 per group).

(b) RLY-PI3K1047 dosed at 100 mg/kg twice daily led to reduction in tumor volume in most animals compared to vehicle (p<0.0001 as measured by 2-way ANOVA).

(c) Insulin levels in serum were measured one hour before and one hour after drug administration in non-tumor bearing animals throughout an 8 day dosing period (measurements were taken specifically on day 1, 3, 5 and 8, n=8 per group). Data presented as mean +/- standard error of the mean.

(d) In the oral glucose tolerance test (OGTT), animals were fasted overnight for 16 hours prior to compound treatment. Animals were then allowed to recover after compound dosing for 1 hour. After the 1 hour recovery, a 2 g/kg glucose solution was administered orally. Insulin levels were measured at time 0 (prior to glucose administration), 10, 30, 60, 120, and 360 minutes post dosing (n=8 per group, data presented as mean +/- standard error of the mean).

While RLY-PI3K1047 is one lead molecule generated in this franchise, we are continuing lead optimization to identify mutant selective inhibitors of PI3Kα meeting our criteria to enter IND-enabling studies.

Our clinical development plan

We expect to begin IND-enabling studies for a differentiated PI3Kα H1047X mutant-selective inhibitor in 2021. With this profile, we will look to advance a precision medicine program that quickly establishes safety, tolerability, and preliminary efficacy, in patients with advanced solid tumors with H1047X mutations. Upon completion of dose escalation, the mutant PI3Kα inhibitor will be tested as a monotherapy in advanced cancer

 

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patients with PI3Kα H1047X mutations in a tumor-agnostic study. We will also pursue disease-specific development paths including combination with endocrine therapy +/- CDK4/6 inhibitors in hormone-receptor positive breast cancer and a PI3Kα H1047X mutation.

Our Discovery Programs

We are deploying our Dynamo platform to advance an additional three discovery-stage precision oncology programs. As with our lead programs, these programs leverage insights into protein conformational dynamics to address high-value, genetically validated oncogenes that previously have been intractable to conventional drug-discovery approaches. The capabilities for our Dynamo platform in protein visualization can be applied to multiple therapeutic areas beyond precision oncology. We are continuing to leverage the power of our Dynamo platform to further diversify our pipeline by extending our approach to address genetically validated targets in monogenic diseases with two discovery-stage programs, where genetic alterations lead to disease-causing defects in protein conformational dynamics.

Our Key Scientific Collaborations

While we have invested extensively in our in-house capabilities and know-how, we selectively work with key collaborators and field experts on certain emerging technologies. Most of our experimental collaborations are focused on the technologies we use to visualize protein structure at the atomic level. For example, we work with Professor James Fraser from UCSF on performing and analyzing room temperature X-ray crystallography experiments and Professor Adam Frost from UCSF on Cryo-EM image analysis. Both are world leading experts on these technologies, and they provide important know-how and insights in collaboration with our scientists.

Since our firm’s founding we have collaborated with D. E. Shaw Research, a computational biochemistry research firm operating under the scientific leadership of Dr. David E. Shaw, which has developed proprietary software and hardware to perform long timescale molecular dynamics simulations. Through an affiliate, D. E. Shaw Research is also one of our investors. We collaborate with D. E. Shaw Research scientists to research certain protein targets on an exclusive basis, with a focus on the dynamic behavior of proteins, through the use of D. E. Shaw Research’s computational modeling capabilities, such as the Anton 2 supercomputer and proprietary algorithms and software developed specifically by D. E. Shaw Research for processing long timescale molecular dynamics simulations. Our scientists work closely with D. E. Shaw Research scientists on each of our programs, especially in the discovery stage as we develop motion-based hypotheses and identify lead compounds. See “Business—Collaboration and License Agreement with D. E. Shaw Research, LLC” for more detail on the terms of the DESRES Agreement.

While our key computational collaboration is with D. E. Shaw Research, we also have other collaborations mostly focused on developing machine learning models. Specifically, we collaborate with Google on machine learning models to generate novel molecules with specific activity, and with Professor Tim Cernak from the University of Michigan on machine learning models focused on chemical synthesis and high throughput experimentation.

Competition

The biotechnology and pharmaceutical industries are characterized by rapid innovation of new technologies, fierce competition and strong defense of intellectual property. While we believe that our platform and our knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.

 

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We compete in the segments of the pharmaceutical, biotechnology, and other related markets that address experimentally and computationally driven structure-based drug design in cancer and genetic diseases. There are other companies focusing on structure-based drug design to develop therapies in the fields of cancer and other diseases. These companies include divisions of large pharmaceutical companies and biotechnology companies of various sizes. Any product candidates that we successfully develop and commercialize will compete with currently approved therapies and new therapies that may become available in the future from segments of the pharmaceutical, biotechnology and other related markets that pursue precision medicines. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products.

We believe principal competitive factors to our business include, among other things, the rich protein structural data sets we are able to generate, the power and accuracy of our computations and predictions, ability to integrate experimental and computational capabilities, ability to successfully transition research programs into clinical development, ability to raise capital, and the scalability of the platform, pipeline, and business.

While there are many pharmaceutical and biotechnology companies that use some of the same tools that we use in our platform, we believe we compete favorably on the basis of these factors. The effort and investment required to develop a highly integrated experimental and computational platform similar to ours will hinder new entrants that are unable to invest the necessary capital and time and lack the breadth and depth of technical expertise required to develop competing capabilities. Our ability to remain competitive will largely depend on our ability to continue to augment our integrated experimental and computational platform and demonstrate success in our drug discovery efforts.

Our competitors may obtain regulatory approval of their products more rapidly than we may or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile than our products and these competitors may also be more successful than us in manufacturing and marketing their products.

In addition, we will need to develop our product candidates in collaboration with diagnostic companies, and we will face competition from other companies in establishing these collaborations. Our competitors will also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Furthermore, we also face competition more broadly across the market for cost-effective and reimbursable cancer treatments. The most common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy, hormone therapy and targeted drug therapy or a combination of such methods. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. While our product candidates, if any are approved, may compete with these existing drug and other therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our product candidates may not be competitive with them. Some of these drugs are branded and subject to patent protection, and others are available on a generic basis. Insurers and other third-party payors may also encourage the use of generic products or specific branded products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic, including branded generic, products. As a result, obtaining market acceptance of, and gaining significant share of the market for, any of our product candidates that we successfully introduce to the market will pose challenges. In addition, many companies are developing new therapeutics, and we cannot predict what the standard of care will be as our product candidates progress through clinical development.

 

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RLY-1971

While there are currently no approved products targeting SHP2, we are aware of other companies in clinical trials developing therapeutics that target SHP2, including Revolution Medicines in partnership with Sanofi, Novartis AG, and Jacobio Pharmaceuticals in partnership with AbbVie.

RLY-4008

While there are currently no approved products that selectively target FGFR2, we are aware of other companies developing therapeutics that selectively target FGFR2, which include, but are not limited to: Five Prime Therapeutics and Russian Pharmaceutical Technologies. Specifically, we expect RLY-4008 to compete with approved development stage non-selective inhibitors of the FGFR receptor family that are being tested in patients with FGFR2 alterations, including but not limited to: Incyte Corporation (pemigatinib), QED Therapeutics (infigratinib), Basilea Pharmaceutica (derazantinib), Janssen (erdafitinib), Otsuka Holdings through its subsidiary Taiho Pharmaceutical (TAS-120), Debiopharm (Debio1347), Eisai Co (E-7090), and InnoCare Pharma (ICP-192).

The development of RLY-4008 will focus on solid tumor patients with FGFR2 alterations, including intrahepatic cholangiocarcinoma (ICC) patients harboring FGFR2 gene fusions. While there are no approved systemic therapies for ICC, the current standard of care for unresectable or metastatic patients is first-line gemcitabine/cisplatin chemotherapy. In addition, there are other companies developing potentially competitive drug candidates in ICC including, but not limited to: Merck & Co, Astrazeneca plc, Merck KGaA, and NuCana plc.

Mutant-PI3Kα Inhibitor Program

We expect that our mutant-selective PI3Kα inhibitor program will compete against an approved drug, Piqray (alpelisib), a non-selective PI3Kα inhibitor marketed by Novartis for the treatment of PI3Kα mutated breast cancer. We are aware of other companies developing therapeutics that target both wild-type and mutant PI3Kα, including but not limited to: Roche Holding AG through its subsidiary Genentech, Petra Pharma, Menarini Group, and Shanghai Haihe Pharma. Petra Pharma also has a preclinical development program for a mutant-selective PI3Kα inhibitor.

Collaboration and License Agreement with D. E. Shaw Research, LLC

On June 15, 2020, we entered into an Amended and Restated Collaboration and License Agreement with D. E. Shaw Research, LLC, or D. E. Shaw Research, extending the term and otherwise modifying the terms of a Collaboration and License Agreement originally entered into on August 17, 2016, as amended. We refer to this amended and restated agreement as the DESRES Agreement. Under the DESRES Agreement, we agreed to collaborate with D. E. Shaw Research to research certain biological targets through the use of D. E. Shaw Research computational modeling capabilities focused on analysis of protein motion, with an aim to develop and commercialize compounds and products directed to such targets. We are responsible for the development and commercialization of such compounds and products, subject to certain diligence obligations.

Under the DESRES Agreement, there are three categories of targets: Category 1 Targets, Category 2 Targets and Category 3 Targets. We and D. E. Shaw Research agreed on a list of Category 1 Targets and Category 2 Targets as part of the DESRES Agreement. Category 1 Targets are targets that, among other things, we collaborate on with D. E. Shaw Research, D. E. Shaw Research has exclusivity obligations with respect to, and we may owe royalties on; Category 2 Targets are targets in connection with the potential re-categorization of which into a Category 1 Target, we may, among other things, perform in vitro non-clinical research and development (but not in vivo non-clinical development, clinical development or commercialization), and Category 3 Targets are all targets other than Category 1 Targets and Category 2 Targets. There are mechanisms for re-categorizing targets, and we and D. E. Shaw Research have re-categorized a number of targets during the first four years of our

 

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collaboration. Our rights and obligations, and D. E. Shaw Research’s rights and obligations, with respect to targets vary by the category of each target. However, the parties only conduct collaborative activities together for Category 1 Targets, and we are limited to a maximum of eleven Category 1 Targets in the current collaboration year (with such number potentially changing from year to year, with any increase in such number of targets subject to the collaboration in each collaboration year capped at four more than the highest number of such targets in the previous year). The sum of the number of Category 1 Targets and the number of Category 2 Targets is capped at twenty, in any event.

Work product that is jointly developed with D. E. Shaw Research is initially co-owned with them, including the composition of matter for RLY-1971. We have the right to have patents claiming certain product candidates (including one claiming RLY-1971) assigned to us upon issuance of those patents. Although other compounds in our FGFR2 and PI3Kα programs were jointly conceived with D. E. Shaw Research, RLY-4008 and RLY-PI3K1047 were conceived solely by Relay Therapeutics inventors. For each Category 1 Target there is a limit of up to 10 core compounds and a total of 500 compounds including derivatives of those core compounds that can be designated as solely owned by us, provided that if D. E. Shaw Research provides us with notice that certain compounds cannot be designated as solely owned by us due to concerns in respect of a Category 3 Target, then the limit on Category 1 Target core compounds will increase by one and the limit on total compounds will increase by fifty, but subject to a maximum of 15 and 750, respectively, for each Category 1 Target. Each of we and D. E. Shaw Research grants to the other a perpetual, irrevocable, non-exclusive license for jointly held intellectual property, subject to certain exclusions.

During the initial research term, which is expected to last until August 2025, unless extended by mutual agreement, D. E. Shaw Research will not, and will cause its subsidiaries not to, research any Category 1 Target (or grant certain rights with respect to such target) with the aim of pursuing any compound designed to interact with or bind to such Category 1 Target, subject to some exceptions. Following the end of the initial research term, D. E. Shaw Research will not, and will cause its subsidiaries not to, research a Category 1 Target (or grant certain rights with respect to such target) with the aim of pursuing any compound designed to interact with or bind to any target that was a Category 1 Target at the end of the initial research term, subject to some exceptions. D. E. Shaw Research will not be bound by such exclusivity provisions with respect to a particular Category 1 Target if we, and parties acting on our behalf, stop using commercially reasonable efforts to research, develop or commercialize any products against such Category 1 Target. Further, D. E. Shaw Research will be released from such exclusivity obligations with respect to a particular Category 1 Target if, at least 24 months after the end of the initial research term, D. E. Shaw Research informs us that D. E. Shaw Research will forgo all future payments with respect to such Category 1 Target.

During the initial research term, neither D. E. Shaw Research nor we will, and we will each cause our subsidiaries not to, research a Category 2 Target (or grant certain rights with respect to such target) with the aim of pursuing any compound designed to interact with or bind to such Category 2 Target, subject to some exceptions. These exclusivity restrictions do not extend past the initial research term.

There is no exclusivity with respect to Category 3 Targets.

Through May 31, 2020, we have made cash payments to D. E. Shaw Research totaling $3.5 million in the aggregate. On a product-by-product basis, we have also agreed to pay D. E. Shaw Research milestone payments upon the achievement of certain development and regulatory milestone events for products we develop under the DESRES Agreement that are directed to a Category 1 Target or any target that was a Category 1 Target. Our SHP2, FGFR2 and PI3K programs are each directed to Category 1 Targets. Such payments for achievement of development and regulatory milestones total up to $7.25 million in the aggregate for each of the first three products we develop, and up to $6.25 million in the aggregate for each product we develop after the first three.

Additionally, we have agreed to pay D. E. Shaw Research, on a product-by-product basis, with respect to products directed to Category 1 Targets or any target that was a Category 1 Target, royalties in the low single digits on worldwide net sales of products directed to the targets selected for development under the DESRES

 

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Agreement, subject to certain reductions. Royalties are payable on a product-by-product and country-by-country basis until the later of twelve years after first commercial sale in such country or the expiration of all applicable regulatory exclusivities in such country. On a product-by-product basis, we also agreed to pay D. E. Shaw Research sales milestone payments up to $36.0 million in the aggregate based on sales of each product directed to a Category 1 Target or any target that was a Category 1 Target. Further, if we enter into transactions granting third parties rights to a Category 1 Target or a compound or product directed to a Category 1 Target or any target that was a Category 1 Target, but subject to certain exclusions, we will share with D. E. Shaw Research a percentage of the proceeds of such transactions ranging from the low- to high-single digits, depending on the stage of development of compounds or products directed to such target at the time we enter into such transaction. We have also agreed to pay D. E. Shaw Research an annual collaboration fee in August of each year during the initial research term, such fee to be $7,900,000 for each year between 2020 and 2025.

Unless earlier terminated, the DESRES Agreement will continue at least until the end of the initial research term and thereafter on a target-by-target basis until all payment obligations have expired. D. E. Shaw Research has the right to terminate the DESRES Agreement due to non-payment. We and D. E. Shaw Research each have the right to terminate the DESRES Agreement due to an uncured material breach by the other party, or in the event the other party becomes insolvent or enters into bankruptcy or dissolution proceedings. Our payment obligations to D. E. Shaw Research survive termination of the DESRES Agreement. If D. E. Shaw Research terminates the DESRES Agreement, the exclusivity obligations will terminate. If we terminate the DESRES Agreement, D. E. Shaw Research remains bound by its exclusivity obligations with respect to certain targets until, on a target-by-target basis, there are no further payment obligations due to D. E. Shaw Research in respect of such targets.

Intellectual Property

We seek to protect the intellectual property and proprietary technology that we consider important to our business, including by pursuing patent applications that cover our product candidates and methods of using the same, as well as any other relevant inventions and improvements that we believe to be commercially important to the development of our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. Our commercial success depends, in part, on our ability to obtain, maintain, enforce and protect our intellectual property and other proprietary rights for the technology, inventions and improvements we consider important to our business, and to defend any patents we may own or in-license in the future, prevent others from infringing any patents we may own or in-license in the future, preserve the confidentiality of our trade secrets, and operate without infringing, misappropriating or otherwise violating the valid and enforceable patents and proprietary rights of third parties.

As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property position for our product candidates and technologies will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, our pending provisional and PCT patent applications, and any patent applications that we may in the future file or license from third parties, may not result in the issuance of patents and any issued patents we may obtain do not guarantee us the right to practice our technology or commercialize our product candidates. We also cannot predict the breadth of claims that may be allowed or enforced in any patents we may own or in-license in the future. Any issued patents that we may own or in-license in the future may be challenged, invalidated, circumvented or have the scope of their claims narrowed. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting the protection such patent would afford the respective product and any competitive advantage such patent may provide.

The term of individual patents depends upon the date of filing of the patent application, the date of patent issuance and the legal term of patents in the countries in which they are obtained. In most countries, including the

 

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United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent claiming a new drug product may also be eligible for a limited patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. The restoration period granted on a patent covering a product is typically one-half the time between the effective date of a clinical investigation involving human beings is begun and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. Only one patent applicable to an approved product is eligible for the extension, and only those claims covering the approved product, a method for using it, or a method for manufacturing it may be extended. Additionally, the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA. In the future, if our product candidates receive approval by the FDA, we expect to apply for patent term extensions on any issued patents covering those products, depending upon the length of the clinical studies for each product and other factors. There can be no assurance that patents will issue from our current or future pending patent applications, or that we will benefit from any patent term extension or favorable adjustments to the terms of any patents we may own or in-license in the future. In addition, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Patent term may be inadequate to protect our competitive position on our products for an adequate amount of time.

As of June 15, 2020, we owned four pending U.S. provisional patent applications, five pending U.S. non-provisional patent applications, and seven pending Patent Cooperation Treaty, or PCT, patent applications, two pending Argentina non-provisional patent applications, and two pending Taiwan non-provisional patent applications. We currently do not own or in-license any issued patents or non-provisional patent applications with respect to RLY-4008, our platform technology, or our PI3K Program, and our intellectual property portfolio is in its very early stages. We do not currently own or in-license any issued patents or provisional or non-provisional patent applications covering our other product candidates or technology. Presently, all of the patent applications we own are co-owned with D. E. Shaw, with the exception of one of our U.S. provisional patent applications relating to certain dosage forms of RLY-1971, which is wholly owned by us.

RLY-1971

As of June 15, 2020, we owned one U.S. non-provisional patent application, one Argentina patent application, and one Taiwan patent application that cover the composition of matter for RLY-1971, as well as methods of using and making RLY-1971. Any U.S. or foreign patent that may issue from these patent applications would be scheduled to expire in 2039, excluding any additional term for patent term adjustment or patent term extension, if applicable. As of June 15, 2020, we wholly own one U.S. provisional patent application that covers the drug substance and methods of manufacture of RLY-1971. Any U.S. or foreign patent that may issue from a non-provisional patent application claiming priority to this patent application would be scheduled to expire in 2040, excluding any additional term for patent term adjustment or patent term extension, if applicable.

RLY-4008

As of June 15, 2020, we owned two pending U.S. provisional applications, one PCT patent application, one Argentina patent application and one Taiwan patent application that cover the composition of matter for RLY-4008, as well as methods of using and making RLY-4008. Any U.S. or foreign patent that may issue from a non-provisional patent application claiming priority to these applications would be scheduled to expire in 2040, excluding any additional term for patent term adjustment or patent term extension, if applicable.

 

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PI3K Program

As of June 15, 2020, we owned one pending U.S. provisional patent application that cover our PI3K Program, which is directed to the composition of matter for the drug candidates of the program, analogs thereof, as well as methods of making and using these compounds. Any U.S. or foreign patent that may issue from a non-provisional patent application claiming priority to this application would be scheduled to expire in 2041.

Prosecution of the PCT patent application covering RLY-4008 and the provisional patent application covering our PI3K Program has not commenced, and will not commence unless and until they are timely converted into U.S. non-provisional or national stage applications. Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO or other foreign jurisdiction are often significantly narrowed by the time they issue, if they issue at all. Any U.S. or foreign patent issuing from these provisional, PCT, or foreign patent applications (assuming they are timely converted into non-provisional applications, and such non-provisional applications are granted as issued patents) would be scheduled to expire in 2040 (for RLY-4008) or 2041 (for our PI3K application), excluding any additional term for patent term adjustment or patent term extension, and assuming national phase entries are timely made based upon the pending PCT application, and payment of all applicable maintenance or annuity fees. Any of our pending PCT patent applications are not eligible to become issued patents until, among other things, we file national stage patent applications within 30 months in the countries in which we seek patent protection. If we do not timely file any national stage patent applications, we may lose our priority date with respect to our PCT patent applications and any patent protection on the inventions disclosed in such PCT patent applications. Our provisional patent applications may never result in issued patents and are not eligible to become issued patents until, among other things, we file a non-provisional patent application within 12 months of filing the related provisional patent application. If we do not timely file non-provisional patent applications, we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file non-provisional and national stage patent applications relating to our provisional and PCT patent applications, we cannot predict whether any of our current or future patent applications for RLY-1971, RLY-4008, or any of our other product candidates or technology, will issue as patents. If we do not successfully obtain patent protection, or, even if we do obtain patent protection, if the scope of the patent protection we, or our potential licensors, obtain with respect to RLY-1971, RLY-4008, or our other product candidates or technology is not sufficiently broad, we will be unable to prevent others from using our technology or from developing or commercializing technology and products similar or identical to ours or other competing products and technologies.

In addition to patent applications, we rely on unpatented trade secrets, know-how and continuing technological innovation to develop and maintain our competitive position. However, trade secrets and confidential know-how are difficult to protect. In particular, we anticipate that with respect to the building of our compound library, our trade secrets and know-how will over time be disseminated within the industry through independent development and public presentations describing the methodology. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors and non-competition, non-solicitation, confidentiality and invention assignment agreements with our employees and consultants. We have also executed agreements requiring assignment of inventions with selected consultants, scientific advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies that are developed through our relationship with the respective counterparty. We cannot guarantee that we will have executed such agreements with all applicable employees and contractors, or that these agreements will afford us adequate protection of our intellectual property and proprietary information rights. In addition, our trade secrets and/or confidential know-how may become known or be independently developed by a third party or misused by any collaborator to whom we disclose such information. These agreements may also be breached, and we may not have an adequate remedy for any such breach. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain or use information that we regard as proprietary. Although we take steps to protect our

 

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proprietary information, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our trade secrets and proprietary information. For more information regarding the risks related to our intellectual property, please see “Risk Factors—Risks Related to our Intellectual Property.”

Commercialization

Subject to receiving marketing approvals, we expect to commence commercialization activities by building a focused sales and marketing organization in the United States to sell our products. We believe that such an organization will be able to address the community of oncologists who are the key specialists in treating the patient populations for which our product candidates are being developed. Outside the United States, we expect to enter into distribution and other marketing arrangements with third parties for any of our product candidates that obtain marketing approval.

We also plan to build a marketing and sales management organization to create and implement marketing strategies for any products that we market through our own sales organization and to oversee and support our sales force. The responsibilities of the marketing organization would include developing educational initiatives with respect to approved products and establishing relationships with researchers and practitioners in relevant fields of medicine.

Manufacturing

We do not have any manufacturing facilities or personnel. We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates undergoing preclinical testing, as well as for clinical testing and commercial manufacture if our product candidates receive marketing approval.

All of our drug candidates are small molecules and are manufactured in synthetic processes from available starting materials. The chemistry appears amenable to scale-up and does not currently require unusual equipment in the manufacturing process. We expect to continue to develop product candidates that can be produced cost-effectively at contract manufacturing facilities.

We generally expect to rely on third parties for the manufacture of companion diagnostics for our products, which are assays or tests to identify an appropriate patient population. Depending on the technology solutions we choose, we may rely on multiple third parties to manufacture and sell a single test.

Governmental Regulation

The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, recordkeeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs. We, along with our vendors, contract research organizations and contract manufacturers, will be required to navigate the various preclinical, clinical, manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval of our product candidates. The process of obtaining regulatory approvals of drugs and ensuring subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.

In the United States, where we are initially focusing our drug development, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, as amended, its implementing regulations and

 

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other laws. If we fail to comply with applicable FDA or other requirements at any time with respect to product development, clinical testing, approval or any other legal requirements relating to product manufacture, processing, handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, or sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences could include, among other things, the FDA’s refusal to approve pending applications, issuance of clinical holds for ongoing studies, suspension or revocation of approved applications, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.

The process required by the FDA before our product candidates are approved as drugs for therapeutic indications and may be marketed in the United States generally involves the following:

 

   

completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements;

 

   

completion of the manufacture, under current Good Manufacturing Practices, or cGMP, conditions, of the drug substance and drug product that the sponsor intends to use in human clinical trials along with required analytical and stability testing;

 

   

submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may begin;

 

   

approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before each trial may be initiated;

 

   

performance of adequate and well-controlled clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;

 

   

submission to the FDA of a New Drug Application, or NDA;

 

   

a determination by the FDA within 60 days of its receipt of an NDA, to accept the filing for review;

 

   

satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

 

   

potentially, satisfactory completion of FDA audit of the clinical trial sites that generated the data in support of the NDA;

 

   

payment of user fees for FDA review of the NDA; and

 

   

FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States.

Preclinical studies and clinical trials for drugs

Before testing any drug in humans, the product candidate must undergo rigorous preclinical testing. Preclinical studies include laboratory evaluations of drug chemistry, formulation and stability, as well as in vitro and animal studies to assess safety and in some cases to establish the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state regulation, including GLP requirements for safety/toxicology studies. The results of the preclinical studies, together with manufacturing information and analytical data, must be submitted to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product to humans and must become effective before clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the

 

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