# Relay Therapeutics, Inc. (RLAY) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Relay Therapeutics, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1812364/000095017023004123/rlay-20221231.htm
Accession: 0000950170-23-004123
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/RLAY/
All MD&A years: /company/RLAY/mda/
Previous year: /company/RLAY/mda/fy2021/ (FY 2021)
Next year: /company/RLAY/mda/fy2023/ (FY 2023)

Overview

We are a clinical-stage precision medicine company transforming the drug discovery process by combining leading-edge computational and experimental technologies with the goal of bringing life-changing therapies to patients. As we believe we are among the first of a new breed of biotech created at the intersection of complementary techniques and technologies, we aim to push the boundaries of what’s possible in drug discovery. Our Dynamo™ platform integrates an array of leading-edge computational and experimental approaches designed to drug protein targets that have previously been intractable or inadequately addressed. Our initial focus is on enhancing small molecule therapeutic discovery in targeted oncology and genetic disease indications.

We have deployed our technology platform to build a pipeline of product candidates to address targets in precision medicine 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.

We are advancing a pipeline of medicines to address targets in precision oncology and genetic disease indications, including our lead product candidates, RLY-4008, RLY-2608, and GDC-1971 (formerly known as RLY-1971).

•
RLY-4008. In the third quarter of 2020, we initiated the RLY-4008 ReFocus Trial for patients with advanced or metastatic FGFR2-altered solid tumors. In October 2021, we announced initial clinical data from this trial, which suggested robust inhibition of FGFR2 in the first 49 subjects that was not observed to be limited by off-target toxicities, including hyperphosphatemia and diarrhea, as of the data cut-off date of September 9, 2021. In December 2021, we initiated expansion cohorts at a continuous 70 mg once-daily, or QD, dose, and in January 2022, the U.S. Food and Drug Administration, or FDA, granted orphan drug designation to RLY-4008 for the treatment of cholangiocarcinoma, or CCA. In the first half of 2022, we conducted an end-of-Phase 1 meeting with the FDA to discuss next steps for the clinical development of RLY-4008. Based on discussions with the FDA, we have decided to move forward with a single-arm trial design for pan-FGFR, or FGFRi, treatment-naïve, FGFR2-fusion CCA at 70 mg QD to potentially support accelerated approval. In June 2022, we announced the anticipated registrational path for RLY-4008 in CCA and the interim clinical data with a data cut-off date of April 19, 2022 that was shared with the FDA to support that potential registrational path. In September 2022, we announced additional interim clinical data for RLY-4008 with a data cut-off date of August 1, 2022 that was presented at the European Society for Medical Oncology Congress 2022. This interim clinical data showed an interim ORR of 88% from the FGFRi treatment-naïve, FGFR2-fusion CCA patients treated at the pivotal dose of 70 mg QD and an interim ORR of 63% across all dose levels and schedules. In October 2022, the European Medicines Agency, or EMA, adopted a positive opinion on the orphan drug designation application for RLY-4008 for the treatment of biliary tract cancer.

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RLY-2608. In December 2021, we dosed the first patient in the RLY-2608 ReDiscover Trial and in April 2022, we initiated the second arm of the dose escalation part of this trial, evaluating RLY-2608 in combination with fulvestrant for patients with HR+, HER2–, PI3Kα-mutated, locally advanced or metastatic breast cancer. RLY-2608 is the lead program of multiple efforts in our PI3Kα franchise to discover and develop mutant selective inhibitors of PI3Kα. In the fourth quarter of 2021, we announced preclinical data for RLY-2608, in which we observed that RLY-2608 preferentially bound to mutant PI3Kα at a novel allosteric site discovered by the Dynamo platform. The data also suggest that projected clinically relevant doses of RLY-2608 achieved tumor regression in PIK3CA mutant in vivo xenograft mouse models representing H1047R and E545K mutations with significantly reduced impact on glucose metabolism compared to non-mutant selective active site inhibitors. The data further suggest that in preclinical models, RLY-2608 combined with standard of care therapies resulted in regressions in ER+/HER2- breast cancer.

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GDC-1971 (formerly known as RLY-1971). In the first quarter of 2020, we initiated a Phase 1a clinical trial for RLY-1971, our inhibitor of Src homology region 2 domain-containing phosphatase-2, or SHP2, as a monotherapy in patients with advanced or metastatic solid tumors. We completed enrollment of this trial in 2022. In December 2020, we entered into the Genentech Agreement for the development and commercialization of RLY-1971 (now referred to as GDC-1971). Genentech initiated the cohort of GDC-1971 in combination with GDC-6036, its KRAS G12C

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inhibitor, in a Phase 1b trial in July 2021, and a Phase 1b trial of GDC-1971 in combination with atezolizumab, its PD-L1 antibody, in August 2022.

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 indications. In addition to the three lead product candidates described above, we announced three discovery stage programs in June 2022 as part of our HR+/HER2- breast cancer franchise, including a selective cyclin dependent kinase 2, or CDK2, inhibitor, a rationally designed estrogen receptor alpha, or ERα, degrader and a selective and chemically distinct pan-mutant PI3Kα inhibitor, RLY-5836. We also have five additional discovery stage programs across both precision oncology and genetic disease indications. 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 computational and experimental approaches on protein motion, 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, convertible debt, and proceeds from public offerings of our common stock. We have also received an aggregate of $105.0 million in connection with the Genentech Agreement through December 31, 2022.

In September 2022, we completed a public offering, or the September 2022 Offering, of 11,320,755 shares of common stock at an offering price of $26.50 per share. We received proceeds of $284.7 million, which was net of $15.3 million in underwriting discounts and commissions, as well as other offering expenses.

In October 2021, we completed a public offering, or the October 2021 Offering, of 15,188,679 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 1,981,132 shares, at an offering price of $26.50 per share. We received proceeds of $382.2 million, which was net of $20.3 million in underwriting discounts and commissions, as well as other offering expenses.

In July 2020, we closed our initial public offering, or IPO, and issued 23,000,000 shares of our common stock at a price of $20.00 per share for proceeds of $425.3 million, which was net of $34.7 million in underwriting discounts and commissions, as well as other offering expenses. Prior to our IPO, we had received gross proceeds of approximately $520.0 million from sales of preferred stock and issuance of convertible debt.

On April 15, 2021, we entered into an Agreement and Plan of Merger, or the Merger Agreement, and on April 22, 2021, we acquired ZebiAI Therapeutics, Inc., or ZebiAI. Pursuant to the Merger Agreement, upfront consideration included (a) payment of approximately $20.0 million in cash and (b) issuance of 1,914,219 shares of our common stock at an aggregate fair value of $61.8 million, both transferred to ZebiAI’s former stockholders, option holders, and warrant holders, or the ZebiAI Holders, upon closing. In addition, (i) the ZebiAI Holders are eligible to receive up to $85.0 million in other payments upon the achievement of certain platform or program milestones, payable in shares of our common stock, or the Contingent Milestone Payments, a portion of which was paid to the ZebiAI Holders in 2022, and (ii) we will pay 10% of payments we receive within three years of the closing date of the Merger Agreement from partnering, collaboration, or other agreements related to ZebiAI’s platform, up to an aggregate maximum amount of $100.0 million, payable in cash, or the Contingent Earnout Payments, to the ZebiAI Holders.

In December 2020, we entered into the Genentech Agreement with Genentech for the development and commercialization of GDC-1971 (formerly known as RLY-1971). Under the terms of the Genentech Agreement, we received $75.0 million in an upfront payment in 2021, as well as $30.0 million in milestone payments from Genentech through December 31, 2022. We are eligible to receive an additional $5.0 million in near-term payments; and, if we do not opt into a U.S. profit/cost share, up to $685.0 million in additional development, commercialization and sales-based milestones for GDC-1971; and tiered royalties on annual global net sales (on a country-by-country basis), anticipated to be in the low-to-mid-teens, subject to reductions in certain circumstances. Additionally, we are eligible to receive additional royalties in the event of regulatory approval of GDC-1971 and Genentech’s compound, GDC-6036, that directly binds to and inhibits KRAS G12C, in combination. We have the right to opt-in to a 50/50 U.S. profit/cost share and, if we do opt into the U.S. profit/cost share, we are eligible to receive up to $410.0 million in additional commercialization and sales-based milestones for GDC-1971 outside of the U.S. and tiered royalties on annual net sales outside of the U.S. (on a country-by-country basis), anticipated to be in the low-to-mid-teens, subject to reduction in certain circumstances. We also retain the right to develop GDC-1971 in combination with our FGFR2 and PI3Kα programs.

The ongoing COVID-19 pandemic has presented a substantial public health and economic challenge around the world and continues to affect our employees, patients, communities, and business operations. The extent to which the COVID-19 pandemic may continue to affect 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 severity and duration of additional variant outbreaks, vaccination and booster vaccination rates where we or our third party

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partners conduct operations, and the actions to contain COVID-19 or treat its impact, among others. The continued spread of COVID-19 globally could adversely impact our preclinical or clinical trial operations in the United States, including our ability to obtain slots for IND-enabling studies, recruit and retain patients, principal investigators and site staff in our clinical trials, and obtain sufficient clinical trial supply of our product candidates due to supply chain disruptions or interruptions in global shipping, as well as activate new clinical trial sites. To date, we have been able to continue to enroll our patients in first-in-human clinical trials for RLY-4008 and RLY-2608, and we currently do not anticipate any interruptions in clinical enrollment or any material adverse impact on our financial condition or results of operations due to the ongoing COVID-19 pandemic. However, we are continuing to assess the potential impact of the ongoing 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. See “—The ongoing COVID-19 pandemic has impacted our business and any future pandemic, epidemic, or outbreak of an infectious disease could similarly affect our business and our financial results and could cause further disruption to the development of our product candidates” for a more detailed discussion of the risks related to the ongoing COVID-19 pandemic.

Additionally, inflation generally affects us by increasing our employee-related costs and clinical trial expenses, as well as other operating expenses. Our financial condition and results of operations may also be impacted by other factors we may not be able to control, such as global supply chain disruptions, uncertain global economic conditions, global trade disputes or political instability as further discussed in the section “Risk Factors” in this Annual Report. We do not believe that such factors had a material adverse impact on our results of operations during the years ended December 31, 2022, 2021, and 2020.

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 $290.5 million, $363.9 million, and $52.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, we had an accumulated deficit of $1.1 billion. 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, including the costs of operating as a public company, and generate increasing operating losses for at least the next several years.

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

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conduct our current and future clinical trials of RLY-4008 and RLY-2608;

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conduct additional preclinical research and development of RLY-5836, our PI3Kα mutant selective inhibitor, CDK2 inhibitor and ERα degrader programs and other early-stage programs;

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

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seek to identify additional product candidates;

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pursue marketing approvals for any of our product candidates that successfully complete clinical trials, if any;

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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

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

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obtain, maintain, expand and protect our intellectual property portfolio;

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acquire or in-license other drugs and technologies;

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

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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 operations as a public company.

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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.

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 may be forced to reduce or terminate our operations.

We believe our cash, cash equivalents, and investments of $998.9 million as of December 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into 2025. 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. We will need to raise additional capital in the future to continue developing the drugs in our pipeline and to commercialize any approved drug. We may seek to obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.

Components of our Results of Operations

Revenue

To date, our revenue primarily consists of amounts related to the Genentech Agreement. We recognize our revenue as the performance obligations are satisfied under the License Agreement.

Operating Expenses

Research and Development Expenses

Research and development expenses include:

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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 contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other vendors that conduct our clinical trials and preclinical activities;

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

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costs related to compliance with regulatory requirements; and

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facility costs, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies. We do not allocate certain internal costs, facilities, or overhead costs to specific development programs.

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 other 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 expenses or accrued research and development expenses.

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Our lead product candidates, RLY-4008, RLY-2608 and GDC-1971, are in clinical development. In addition, we have three discovery stage programs as part of our HR+/HER2- breast cancer franchise, including a selective cyclin dependent kinase 2 inhibitor, a rationally designed estrogen receptor alpha degrader and a selective and chemically distinct pan-mutant PI3Kα inhibitor, RLY-5836. We also have five additional discovery stage programs across both precision oncology and genetic disease indications. Costs incurred for these programs include costs incurred to support our discovery research and translational science efforts up to the initiation of first-in-human 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 include 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 and future development costs, if, when, or to what extent we will generate revenue from the commercialization and sale of any of 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:

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the scope, rate of progress, expense, and results of our preclinical development activities, any future clinical trials of RLY-4008, RLY-2608, or other product candidates and other research and development activities that we may conduct;

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uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates;

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establishing an appropriate safety and efficacy profile with IND-enabling studies;

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the initiation and completion of future clinical trial results;

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the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;

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significant and changing government regulation and regulatory guidance;

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potential additional studies requested by regulatory agencies;

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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;

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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 ongoing COVID-19 pandemic or a similar public health crisis or the changing political conditions, such as the current conflict between Russia and Ukraine and related global economic sanctions;

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the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; and

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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 to conduct clinical trials of RLY-4008 and RLY-2608, as well as 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 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.

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In-Process Research and Development Expenses

In-process research and development expenses consist of the cost of acquiring in-process research and development assets that have no alternative future use, specifically in connection with our acquisition of ZebiAI. We do not expect to record incremental expenses in connection therewith in future periods.

Loss on Initial Consolidation of Variable Interest Entity

Loss on initial consolidation of variable interest entity consists of the difference between total consideration transferred and the fair value of net assets acquired and liabilities assumed in connection with our acquisition of ZebiAI. We do not expect to record incremental losses in connection therewith in future periods.

Change in Fair Value of Contingent Consideration Liability

Change in fair value of contingent consideration liability consists of fluctuations in the estimated fair value of Contingent Milestone Payments under the Merger Agreement with ZebiAI. In future periods, we expect the fair value of such Contingent Milestone Payments to increase or decrease based on, among other things, our estimates of the probability of achieving the contingent milestones and timing in connection therewith, as well as, to a lesser extent, changes in market interest rates and the time value of money.

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; other expenses associated with operating as a public company, including compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs; travel expenses; and facility-related expenses, which include 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.

Other Income, Net

Other income, net primarily consists of interest income related to interest earned on our cash, cash equivalents, and investments.

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 such items.

As of December 31, 2022, we had Federal NOL carryforwards of $412.0 million available to reduce taxable income, of which $43.1 million expire beginning in 2035 and $368.9 million do not expire.

As of December 31, 2022, we had state NOL carryforwards of $501.7 million available to reduce future state taxable income, which expire at various dates beginning in 2035.

As of December 31, 2022, we also had Federal and state research and development tax credit carryforwards of $25.9 million and $5.6 million, respectively, which begin to expire in 2035 and 2030, respectively.

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Results of Operations

Comparison of years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Change"],["","","2022","","","2021"],["","","(in thousands)"],["License and other revenue","","$","1,381","","","$","3,029","","","$","(1,648",")"],["Operating expenses:"],["Research and development expenses","","$","246,355","","","$","172,650","","","$","73,705"],["In-process research and development expenses","","","\u2014","","","","123,000","","","","(123,000",")"],["Loss on initial consolidation of variable interest entity","","","\u2014","","","","11,855","","","","(11,855",")"],["Change in fair value of contingent consideration liability","","","(11,677",")","","","2,836","","","","(14,513",")"],["General and administrative expenses","","","65,978","","","","57,386","","","","8,592"],["Total operating expenses","","","300,656","","","","367,727","","","","(67,071",")"],["Loss from operations","","","(299,275",")","","","(364,698",")","","","65,423"],["Other income, net","","","8,766","","","","826","","","","7,940"],["Net loss","","$","(290,509",")","","$","(363,872",")","","$","73,363"]]
[[/GREPCENT_TABLE]]

License and Other Revenue

We recognized license and other revenue of approximately $1.4 million and $3.0 million for the years ended December 31, 2022 and 2021, respectively. The decrease of $1.6 million was primarily related to (a) the decrease in research and development services provided under the Genentech Agreement, as we completed enrollment of the Phase 1a clinical trial of GDC-1971 (formerly known as RLY-1971) in 2022 and are nearing completion of trial-related activities, and (b) revenue recognized upon the transfer of active pharmaceutical ingredient during the year ended December 31, 2021, for which no revenue was recognized during the year ended December 31, 2022.

Research and Development Expenses

The following summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Change"],["","","2022","","","2021"],["","","(in thousands)"],["External costs for programs in clinical trials","","$","51,094","","","$","18,367","","","$","32,727"],["External costs for platform technologies and preclinical programs","","","80,612","","","","69,828","","","","10,784"],["Employee related expenses","","","93,118","","","","68,438","","","","24,680"],["Other expenses","","","21,531","","","","16,017","","","","5,514"],["Total research and development expenses","","$","246,355","","","$","172,650","","","$","73,705"]]
[[/GREPCENT_TABLE]]

Research and development expenses were $246.4 million for the year ended December 31, 2022 compared to $172.7 million for the year ended December 31, 2021. The increase of $73.7 million was due to $32.7 million of additional external costs in connection with the ongoing enrollment of our clinical trials for RLY-4008 and RLY-2608, $24.7 million of additional employee related costs from increased headcount, including an increase in stock-based compensation expense of $5.7 million, $10.8 million of additional external costs for platform technologies and preclinical programs, and $5.5 million of other expenses, primarily for facility expenses associated with additional lab space during the year ended December 31, 2022.

In-Process Research and Development Expenses

In-process research and development expenses of $123.0 million were recognized for the year ended December 31, 2021 in connection with the in-process research and development asset pursuant to the asset acquisition of ZebiAI in the second quarter of 2021. No such expenses were incurred during the year ended December 31, 2022.

Loss on Initial Consolidation of Variable Interest Entity

Loss on initial consolidation of variable interest entity of $11.9 million was recognized for the year ended December 31, 2021 in connection with the acquisition of ZebiAI in the second quarter of 2021. No such expenses were incurred during the year ended December 31, 2022.

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Change in Fair Value of Contingent Consideration Liability

The change in fair value of our contingent consideration liability for Contingent Milestone Payments under the Merger Agreement with ZebiAI was a decrease of $11.7 million for the year ended December 31, 2022 compared to an increase of $2.8 million for the year ended December 31, 2021. The fluctuation of $14.5 million was primarily attributable to changes in the assumptions underlying the fair value measurement between periods, which we expect to continue in future periods.

General and Administrative Expenses

General and administrative expenses were $66.0 million for the year ended December 31, 2022 compared to $57.4 million for the year ended December 31, 2021. The increase of $8.6 million was primarily due to $9.2 million of additional employee related costs from increased headcount, including an increase in stock-based compensation expense of $1.9 million, offset by individually insignificant fluctuations in other general and administrative expenses.

Other Income, Net

Other income, net, was $8.8 million for the year ended December 31, 2022 compared to $0.8 million for the year ended December 31, 2021. The increase of approximately $8.0 million was primarily a result of changes in interest rates.

Comparison of years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Change"],["","","2021","","","2020"],["","","(in thousands)"],["License and other revenue","","$","3,029","","","$","82,654","","","$","(79,625",")"],["Operating expenses:"],["Research and development expenses","","$","172,650","","","$","99,862","","","$","72,788"],["In-process research and development expenses","","","123,000","","","","\u2014","","","","123,000"],["Loss on initial consolidation of variable interest entity","","","11,855","","","","\u2014","","","","11,855"],["Change in fair value of contingent consideration liability","","","2,836","","","","\u2014","","","","2,836"],["General and administrative expenses","","","57,386","","","","38,588","","","","18,798"],["Total operating expenses","","","367,727","","","","138,450","","","","229,277"],["Loss from operations","","","(364,698",")","","","(55,796",")","","","(308,902",")"],["Other income, net","","","826","","","","3,384","","","","(2,558",")"],["Net loss","","$","(363,872",")","","$","(52,412",")","","$","(311,460",")"]]
[[/GREPCENT_TABLE]]

License and Other Revenue

We recognized license and other revenue of $3.0 million and $82.7 million for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2020, license and other revenue was recognized for substantially all of the $85.0 million upfront payment under the Genentech Agreement upon transfer of the license. During the year ended December 31, 2021, $3.0 million of license and other revenue was recognized, primarily upon satisfaction of the ongoing performance obligation to provide research and development services to Genentech under the Genentech Agreement, as well as upon the transfer of active pharmaceutical ingredient to Genentech.

Research and Development Expenses

The following summarizes our research and development expenses for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","","Change"],["","","2021","","","2020"],["","","(in thousands)"],["External costs for programs in clinical trials","","$","18,367","","","$","7,447","","","$","10,920"],["External costs for platform technologies and preclinical programs","","","69,828","","","","42,431","","","","27,397"],["Employee related expenses","","","68,438","","","","38,440","","","","29,998"],["Other expenses","","","16,017","","","","11,544","","","","4,473"],["Total research and development expenses","","$","172,650","","","$","99,862","","","$","72,788"]]
[[/GREPCENT_TABLE]]

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Research and development expenses were $172.7 million for the year ended December 31, 2021 compared to $99.9 million for the year ended December 31, 2020. The increase of $72.8 million was due to $30.0 million of additional employee related costs from increased headcount, including an increase in stock-based compensation expense of $10.2 million, $27.4 million of additional external costs for platform technologies and preclinical programs, $10.9 million of additional external costs in connection with the ongoing enrollment of our clinical trial for RLY-4008 and the initiation of our clinical trial for RLY-2608 during the year ended December 31, 2021, and $4.5 million of additional costs for such items as lab supplies, facilities, depreciation, and other miscellaneous expenses.

In-Process Research and Development Expenses

In-process research and development expenses of $123.0 million were recognized for the year ended December 31, 2021 in connection with the in-process research and development asset pursuant to the asset acquisition of ZebiAI in the second quarter of 2021. No such expenses were incurred during the year ended December 31, 2020.

Loss on Initial Consolidation of Variable Interest Entity

Loss on initial consolidation of variable interest entity of $11.9 million was recognized for the year ended December 31, 2021 in connection with the acquisition of ZebiAI in the second quarter of 2021. No such expenses were incurred during the year ended December 31, 2020.

Change in Fair Value of Contingent Consideration Liability

The change in fair value of our contingent consideration liability for Contingent Milestone Payments under the Merger Agreement with ZebiAI was an increase of $2.8 million for the year ended December 31, 2021, primarily attributable to time value of money. There were no similar amounts in the year ended December 31, 2020, since the contingent consideration liability was only originally recorded upon closing of the transaction in April 2021.

General and Administrative Expenses

General and administrative expenses were $57.4 million for the year ended December 31, 2021 compared to $38.6 million for the year ended December 31, 2020. The increase of $18.8 million was primarily due to $12.8 million of additional employee related costs from increased headcount, including an increase of $6.3 million in stock-based compensation expense, and $6.0 million of other general and administrative expenses in connection with insurance, advisory, consulting, and other expenses.

Other Income (Expense), Net

Other income, net, was $0.8 million for the year ended December 31, 2021 compared to $3.4 million for the year ended December 31, 2020. The decrease of $2.6 million was primarily a result of changes in interest rates.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales 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 principally financed our operations through private placements of preferred stock, convertible debt and proceeds from public offerings of our common stock. In July 2020, we closed our initial public offering and issued 23,000,000 shares of common stock for proceeds of $425.3 million, which was net of $34.7 million in underwriting discounts and commissions, as well as other offering expenses. Prior to our initial public offering, we received gross proceeds of $520.0 million from sales of preferred stock and issuance of convertible debt. We received an upfront payment of $75.0 million from Genentech pursuant to the Genentech Agreement in January 2021, as well as $30.0 million in milestone payments through December 31, 2022. As of December 31, 2022, we had cash, cash equivalents, and investments of $998.9 million.

In August 2021, we filed a universal shelf registration statement on Form S-3ASR with the SEC, or the 2021 Shelf, to register for sale an amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective upon filing with the SEC (File No. 333-258768).

In August 2021, we entered into a sales agreement, or Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may offer and sell shares of our common stock having aggregate gross proceeds of up to $300.0 million from time to time in “at-the-market” offerings through Cowen, as our sales agent. We agreed to pay Cowen a commission of up to 3.0% of the gross proceeds of any shares sold by Cowen under the Sales Agreement. There have been no shares of our common stock sold under the Sales Agreement as of December 31, 2022.

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In October 2021, we completed the October 2021 Offering of 15,188,679 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 1,981,132 shares, at an offering price of $26.50 per share. We received proceeds of $382.2 million, which was net of $20.3 million in underwriting discounts and commissions, as well as other offering expenses.

In September 2022, we completed the September 2022 Offering of 11,320,755 shares of common stock at an offering price of $26.50 per share. We received proceeds of $284.7 million, which was net of $15.3 million in underwriting discounts and commissions, as well as other offering expenses.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","2020"],["","","(in thousands)"],["Cash used in operating activities","","$","(229,490",")","","$","(74,406",")","","$","(102,489",")"],["Cash (used in) provided by investing activities","","","(188,745",")","","","(479,511",")","","","81,672"],["Cash provided by financing activities","","","289,910","","","","388,090","","","","426,509"],["Net (decrease) increase in cash, cash equivalents, and restricted cash","","$","(128,325",")","","$","(165,827",")","","$","405,692"]]
[[/GREPCENT_TABLE]]

Operating Activities

During the year ended December 31, 2022, we used $229.5 million of cash on operating activities, primarily resulting from our net loss of $290.5 million, offset by non-cash charges of $49.8 million and cash provided by changes in our operating assets and liabilities of $11.2 million.

During the year ended December 31, 2021, we used $74.4 million on operating activities, primarily resulting from our net loss of $363.9 million, offset by non-cash charges of $192.1 million and cash provided by changes in our operating assets and liabilities of $97.3 million.

During the year ended December 31, 2020, we used $102.5 million on operating activities, primarily resulting from our net loss of $52.4 million and cash used by changes in our operating assets and liabilities of $85.2 million, partially offset by non-cash charges of $35.1 million.

Investing Activities

During the year ended December 31, 2022, we used $188.7 million of cash on investing activities, consisting of $179.7 million of net purchases of investments and $9.1 million for the acquisition of property and equipment.

During the year ended December 31, 2021, we used $479.5 million of cash on investing activities, consisting of $450.7 million of net purchases of investments, $25.3 million for the acquisition of ZebiAI, and $3.5 million for the acquisition of property and equipment.

During the year ended December 31, 2020, net cash provided by investing activities was $81.7 million, consisting of $83.6 million from net investment proceeds upon maturity, offset by $1.9 million for the acquisition of property and equipment.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $289.9 million, primarily consisting of $284.7 million in net proceeds from the September 2022 Offering, as well as $3.5 million in proceeds from the exercise of stock options and $1.7 million in purchases under our Employee Stock Purchase Plan, or ESPP.

During the year ended December 31, 2021, net cash provided by financing activities was $388.1 million, primarily consisting of $382.2 million in net proceeds from the October 2021 Offering, as well as $4.7 million in proceeds from the exercise of stock options and $1.1 million in purchases under our ESPP.

During the year ended December 31, 2020, net cash provided by financing activities was $426.5 million, primarily consisting of $425.3 million in proceeds from our initial public offering, as well as $1.2 million in proceeds from the exercise of stock options.

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Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to RLY-4008 and RLY-2608 and the ongoing preclinical development activities of our other programs. In addition, we continue to incur additional costs associated with operating as a public company. We expect that our expenses will increase substantially as discussed in more detail in “¾ Overview” above.

As of December 31, 2022, we had cash, cash equivalents, and investments of $998.9 million. We believe that our existing cash, cash equivalents, and investments will enable us to fund our operating expenses and capital expenditure requirements into 2025. 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-4008, RLY-2608, and our other product candidates and programs, and because the extent to which we may enter into collaborations with third parties for the 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 ongoing COVID-19 pandemic or similar public health crisis or the changing political conditions, such as the current conflict between Russia and Ukraine and related global economic sanctions;

•
the scope, progress, results, and costs of our current and future clinical trials of RLY-4008 and RLY-2608 and additional preclinical research of our other programs;

•
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;

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

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the success of any existing or future collaborations that we may enter into with third parties;

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the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates, such as the Genentech Agreement;

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the achievement of milestones or occurrence of other developments that trigger payments under any existing or future collaboration agreements, if any;

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

•
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;

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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;

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•
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.

Contractual Obligations and Commitments

Intellectual Property License

On June 15, 2020, we entered into an Amended and Restated Collaboration and License Agreement, or DESRES Agreement, with D. E. Shaw Research, LLC, or D. E. Shaw Research, extending the term and otherwise modifying the terms of the Collaboration and License Agreement originally entered into on August 17, 2016. The DESRES Agreement 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 $7.3 million in the aggregate for each of the first three products we develop and up to $6.3 million in the aggregate for each product we develop after the first three. In addition, we are obligated to pay D. E. Shaw Research royalty payments, as defined in the DESRES Agreement. We assessed the milestone and royalty events under the DESRES Agreement as of December 31, 2022 and 2021, concluding no such payments were due as of the balance sheet dates.

The DESRES Agreement extended the term of the original agreement to August 16, 2025 and increased the annual fee from $1.0 million to $7.9 million, commencing on August 16, 2020. In May 2021, the annual fee was further increased, by mutual agreement of the parties, from $7.9 million to $9.9 million. The DESRES Agreement automatically renews for successive one-year periods, unless either party provides at least one-year notice of non-renewal, and the annual fee during each of the one year renewal terms is subject to the mutual agreement of us and D. E. Shaw Research.

399 Binney Street

In December 2017, we entered into a facility lease agreement for approximately 44,336 square feet of office and laboratory space at 399 Binney Street, Cambridge, Massachusetts 02139, which was increased to 44,807 square feet in January 2018. We gained control of the space in January 2019 and the lease expires in April 2029, subject to certain renewal options, which have not been included in the measurement of our right of use asset and lease liability on the balance sheet through December 31, 2022. In September 2020, we entered into an amendment to our existing facility lease agreement to expand the leased area by approximately 1,824 square feet of office space at 399 Binney Street, Cambridge, Massachusetts 02139. The amendment commenced in October 2020 and also expires in April 2029, subject to certain renewal options, which have also not been included in the measurement of our right of use asset and lease liability on the balance sheet through December 31, 2022. We

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provided a letter of credit in connection with our facility lease agreement in the amount of $0.9 million with a financial institution, which expires commensurate with the lease in April 2029.

60 Hampshire Street

In May 2021, the Company entered into an agreement to lease approximately 41,474 square feet of office and laboratory space at 60 Hampshire Street, Cambridge, Massachusetts 02139. We gained control of the space in July 2022 and the lease expires in June 2032. There are no renewal options. We provided a letter of credit in connection with the agreement in the amount of $1.7 million with a financial institution, which expires commensurate with the lease in June 2032.

Other Significant Arrangements

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 us to the third party have expired. We have the right to terminate such 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. We assessed the milestones as of December 31, 2022 and 2021, concluding no such payments were due as of December 31, 2022 and $0.5 million in payments were due as of December 31, 2021.

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. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

For more information, please refer to Note 12, Commitments and Contingencies, and Note 13, Leases, of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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, liabilities, costs, 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.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, 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.

Acquisition Accounting

We are required to make significant judgments and estimates to determine whether an acquisition constitutes an acquisition of a business or assets. For asset acquisitions, this includes whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. We are also required to make several significant judgments and estimates in order to determine the total consideration transferred for the asset acquisition and then allocate it to the assets we have acquired and the liabilities we have assumed on our consolidated balance sheet.

With respect to the acquisition of ZebiAI in 2021, the determination of the fair value of in-process research and development, or IPR&D, expense did not include significant judgment, considering substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset. However, estimating the fair value of the Contingent Milestone Payments required significant judgment and estimation, primarily with respect to estimating the probability of achieving the milestones and the timing in connection therewith.

We are also required to reassess the fair value of the Contingent Milestone Payments from the acquisition of ZebiAI each quarter, which requires significant judgments and estimation. These significant judgments are primarily the result of our estimates of the probability of achieving the milestone and the timing in connection therewith. Changes in the fair value of the Contingent Milestone Payments can result from changes to one or multiple inputs, including adjustments to the probability of achievement,

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timing of the payments, and, to a lesser extent, changes to the discount rate used to measure the payments at present value. Significant judgment is used in determining these assumptions during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liability.

Revenue Recognition

We account for revenue recognition in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. We recognize revenue pursuant to ASC 606 when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations. We then determine the transaction price and allocate it to the performance obligations. As part of the accounting for such arrangements, we must use judgment to determine: (a) the number of performance obligations; (b) the transaction price, including the determination of whether milestones or other variable consideration should be included in the transaction price; and (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of the transaction price.

We utilize key assumptions and judgments in (a) determining the stand-alone selling price for each performance obligation, which may include discounted cash flow models, evaluation of comparable transactions, and pricing considered in negotiating the transaction and estimated costs, and (b) determining how the transaction price is allocated amongst the performance obligations. We also use judgment to determine whether milestones or other variable consideration should be included in the transaction price. As part of management's evaluation of the transaction price, we consider numerous factors, including whether the achievement of the milestones is outside of our control, contingent upon the efforts of others, or subject to scientific risks of success. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone payment is included in the transaction price. Milestone payments that are not within our control, such as regulatory approvals, are generally not considered probable until those milestones are achieved. We re-evaluate the transaction price, including estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. For revenue-based royalties, including milestone payments based on the level of sales, we will include royalties in the transaction price at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty is allocated has been satisfied (or partially satisfied).

Once the performance obligations are identified, the transaction price is allocated to each performance obligation based on the relative stand-alone selling price. We then recognize as revenue the amount of the transaction price allocated to the respective performance obligation when (or as) it is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, we recognize revenue based on the use of either an output or input method.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate accrued research and development and manufacturing expenses. This process involves reviewing open contracts 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 consolidated 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 such agreements are subject to negotiation and vary from contract to contract, which may result

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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.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that we have adopted is disclosed in Note 2, Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. None of these pronouncements had a material impact on our financial position or results of operations.