On December 11, 2020, the Company entered into the Genentech Agreement, which granted Genentech a license to develop and commercialize RLY-1971. RLY-1971 is currently being developed in a Phase 1a clinical trial for patients with advanced solid tumors (the “Phase 1a Trial”). Unless Genentech elects to exercise its option to conduct the remainder of the ongoing Phase 1a Trial, the Company is responsible for the completion of this trial. Genentech is responsible for conducting all subsequent clinical development of RLY-1971. The Company is also responsible for the one-time transfer of the active pharmaceutical ingredient (“API”) and other materials related to RLY-1971 to Genentech.

Under the Genentech Agreement, the Company is entitled to a non-refundable upfront payment of $75,000, which is due upon completion of certain technology transfer activities and is reflected as accounts receivable on the consolidated balance sheet at December 31, 2020. The Company collected this amount in full in January 2021. The Company is eligible to receive up to $25,000 in near-term milestone payments. The Company is also eligible to receive up to an aggregate of an additional $695,000 upon the achievement of specified development, commercialization and sales-based milestones for RLY-1971 worldwide as well as tiered royalties ranging from low-to-mid teens on annual worldwide net sales of RLY-1971, on a country-by-country basis, subject to reduction in certain circumstances.

The Company has the option, exercisable one time at the Company’s sole discretion, to (a) fund half of the development costs of RLY-1971 in the U.S., (b) share half of the net profits or net loss of commercializing RLY-1971 in the U.S. (the “Profit/Cost Share”) and (c) be eligible to receive up to an aggregate of an additional $410,000 upon the achievement of specified commercialization and sales-based milestones for RLY-1971 outside of the U.S and tiered royalties ranging from low-to-mid teens on annual net sales of RLY-1971 outside of the U.S., on a country-by-country basis, subject to reduction in certain circumstances. The Company may elect to opt-out of further participation in the Profit/Cost Share at any time prior to the third anniversary of the first commercial sale of RLY-1971 in the U.S, in which case the financial terms would revert to the terms applicable as if Company had not opted into the Profit/Cost Share as of the effective opt-out date.

Genentech may terminate the Genentech Agreement for convenience and the Company may terminate the Genentech Agreement under certain limited circumstances. Unless otherwise terminated, the Genentech Agreement will remain in effect until the expiration of all Genentech’s royalty payment obligations to the Company.

The Company concluded that Genentech is a customer in this arrangement and as such, the arrangement falls within the scope of the revenue recognition guidance in ASC 606.

At the commencement of the Genentech Agreement, the Company identified the following performance obligations in the agreement:

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License to develop and commercialize RLY-1971 and the related know-how;

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Research and development services to complete the Phase 1a Trial for RLY-1971; and

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Transfer of API and other materials related to RLY-1971

The Company determined that the performance obligations outlined above are both capable of being distinct and distinct within the context of the contract given such rights and activities are independent of each other. The license can be used by Genentech without the research and development services or API outlined above, and similarly those services and inventory provide distinct benefit to Genentech within the context of the contract, separate from the license.

The Company determined the transaction price for the Genentech Agreement to be $85,867, which includes both fixed and variable consideration amounts. The total transaction price of $85,867 is comprised of (i) the $75,000 fixed, non-refundable upfront payment, (ii) a $5,000 non-refundable milestone payment due upon the transfer of the Investigational New Drug (“IND”) application to Genentech, (iii) a $5,000 non-refundable milestone payment due upon completion of the Phase 1a Trial for RLY-1971 and (iv) $867 of estimated variable consideration related to reimbursements due from Genentech for research and development services. No additional development milestone payments and no regulatory milestone payments are included in the transaction price as all such payments are fully constrained. As part of management’s evaluation of the constraint, the Company considered numerous factors, including the consideration that achievement of the milestones is outside of the Company’s control, contingent upon Genentech’s efforts and the receipt of regulatory approval and subject to scientific risks of success.

The Company allocated the transaction price of $85,867 based on the stand-alone selling prices (“SSP”) of each of the performance obligations as follows:

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$82,654 million for the transfer of the license

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$2,896 million for research and development services; and

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$317 million for the transfer of API.

The SSP for the license was determined using an approach that considered discounted, probability-weighted cash flows related to the license transferred. The Company also reviewed comparable market transactions in determining the SSP of the license. The SSP for the research and development services as well as the transfer of API were based on estimates of the associated effort and cost of these services and cost to manufacture API, adjusted for a reasonable profit margin that would be expected to be realized under similar contracts. The Company performed sensitivity analyses supporting reasonable changes to the SSPs noting no material impact on revenue recognized for the year ended December 31, 2020.

The Company is recognizing revenue for each of the three performance obligations as follows:

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The Company recognized revenue related to the license at a point in time upon transfer of the license to Genentech. The Company recognized the full amount allocated to the license and related know-how in the fourth quarter of 2020 because the Company had transferred the license upon execution of the Genentech Agreement. Revenue recognized during the year ended December 31, 2020 related to the license amounted to $82,654.

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The Company will satisfy the research and development performance obligation for RLY-1971 as the research and development services are performed. The research and development services performance obligation consists of the Company completing the Phase 1a clinical trial initiated in the first quarter of 2020. The Company recognizes revenue related to the research and development services over time using a cost-based input method by calculating actual costs incurred to date at each period end relative to total estimated costs expected to be incurred to fulfill the performance obligation. There was no revenue recognized related to this performance obligation during the year ended December 31, 2020 as the services performed from contract inception to December 31, 2020 were immaterial.

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The Company will recognize revenue related to the transfer of API at a point in time upon transfer to Genentech. There was no revenue recognized related to this performance obligation during the year ended December 31, 2020.

During the year ended December 31, 2020, the Company recognized an aggregate of $82,654 of revenue from the Genentech Agreement related entirely to the transfer of the license. At December 31, 2020, the Company recorded accounts receivable under the Genentech Agreement in the amount of $75,000 and a contract asset in the amount of $7,654, which is classified as a current asset, on the balance sheet. The contract asset relates to the amount of revenue recognized for which the right to payment is contingent upon conditions other than the passage of time, such as the completion of future milestone activities.