Relay Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. Relay is a clinical-stage precision-medicine company developing therapies using its Dynamo drug-discovery platform. It had no approved products and no product-sales revenue.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $0.2 million | $0.4 million |
| Research and development expense | $82.8 million | $51.7 million |
| General and administrative expense | $19.6 million | $16.1 million |
| Net loss | $94.2 million | $62.0 million |
| Net loss per share, basic and diluted | $0.78 | $0.57 |
| Cash used in operating activities | $67.1 million | $49.2 million |
- At March 31, 2023, cash, cash equivalents and investments totaled $937.8 million, including $161.3 million in cash and cash equivalents and $776.5 million in investments. Management said these resources were expected to fund planned operating expenses and capital requirements into 2025; this estimate depends on assumptions and may prove inaccurate.
- Current assets were $958.4 million and current liabilities $70.5 million. The company reported no debt outstanding. It had $52.3 million of long-term operating lease liabilities and a $31.4 million contingent consideration liability.
- Operating expenses rose $38.3 million year over year. R&D increased $31.2 million, mainly from clinical-trial costs for RLY-4008 and RLY-2608, higher headcount and stock compensation, platform/preclinical spending, and facility costs. G&A rose $3.5 million, largely from personnel and stock compensation.
- Interest income increased to $6.9 million from $0.7 million, primarily reflecting changes in interest rates. This partially offset the higher operating loss. Gross margin is not meaningful given the company’s development-stage operations and immaterial revenue.
- Investing cash flow was positive $75.3 million, chiefly reflecting net investment maturities; financing provided $1.3 million from stock-option exercises. Cash, cash equivalents and restricted cash increased $9.5 million during the quarter.
Programs, changes and outlook
- RLY-4008, RLY-2608, GDC-1971 and RLY-5836 were in clinical development. RLY-4008’s development plan included a potential single-arm, registration-enabling trial in FGFR-inhibitor-naïve FGFR2-fusion cholangiocarcinoma patients. The filing describes earlier interim response data; these are not final results.
- After quarter-end, in April 2023, Relay reported initial RLY-2608 clinical data, including selective target engagement and an initial safety/tolerability profile, with dose exploration continuing. It also initiated the first-in-human RLY-5836 trial. These developments occurred after March 31 and are not Q1-period results.
- GDC-1971 development is governed by Relay’s collaboration with Genentech. Relay reported $0.2 million of Genentech-related revenue in Q1 2023, down from $0.4 million, primarily as RLY-1971 Phase 1a research and development services neared completion. The filing also describes potential future milestone and royalty payments, subject to contractual terms and development outcomes.
- Relay expects expenses and operating losses to increase as it advances clinical programs and discovery-stage candidates. It did not provide specific financial guidance beyond its cash-runway estimate. It expects to need additional financing over time and has no committed external funding source; equity issuance could dilute shareholders, while collaboration terms could require relinquishing rights.
Risks, contingencies and other notable items
- Drug development remains highly uncertain: the company has not completed a clinical trial successfully, obtained product approval, or generated product-sales revenue. Early or interim results may not predict later outcomes; enrollment, safety, regulatory, manufacturing and third-party execution risks could delay or prevent development.
- The company relies on third parties for clinical trials and manufacturing, and depends on D. E. Shaw Research and its Anton 2 supercomputer under the DESRES Agreement for important platform work. Loss or disruption of these relationships could hinder research and development.
- Relay reported a March 2023 notification of a ransomware attack at a third-party contract manufacturer; based on information available at filing, it did not believe the event had a material business impact.
- The ZebiAI acquisition’s contingent milestone liability is based on estimates of milestone probability and timing; changes in assumptions may materially affect its fair value. The company recorded a $1.0 million decrease in fair value in Q1 2023, compared with a $4.6 million decrease in Q1 2022.
- Available-for-sale investment unrealized losses were attributed to interest-rate changes, not credit losses; the company stated it did not intend, and was not likely required, to sell the securities before recovery of amortized cost.
- Management reported disclosure controls and procedures were effective as of March 31, 2023, and no material change in internal control over financial reporting occurred during the quarter. Management said it was not party to litigation considered probable to have a material adverse effect.
Investor verification priorities
- Track trial enrollment, dose selection, mature and final efficacy and safety data for RLY-4008 and RLY-2608, and early data from RLY-5836; distinguish company-reported interim findings from confirmed outcomes.
- Monitor quarterly operating cash burn, R&D spending and investment balances against the stated runway into 2025, including assumptions that could shorten it.
- Check Genentech program progress, collaboration economics and any decisions affecting the U.S. profit/cost-share option, milestone eligibility or future revenue recognition.
- Assess contingent consideration remeasurement, potential dilution (including the unused $300 million at-the-market facility), and developments in clinical supply, the third-party manufacturer incident and the DESRES relationship.