Relay Therapeutics, Inc. — Q3 2020 Form 10-Q
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2020, compared with the same periods in 2019. Relay is a clinical-stage precision-medicines company focused on oncology and its Dynamo drug-discovery platform. It has no approved products and has generated no product revenue.
RLY-1971 (SHP2 inhibitor) entered a Phase 1 trial in Q1 2020; RLY-4008 (FGFR2 inhibitor) began a first-in-human trial in September 2020. The company is advancing a PI3Kα-selective program and reported five additional discovery-stage programs.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $24.4m | $18.3m | $67.7m | $47.9m |
| General and administrative expense | $12.2m | $3.7m | $23.0m | $10.3m |
| Total operating expense | $36.6m | $21.9m | $90.8m | $58.2m |
| Net loss | $36.1m | $19.7m | $87.7m | $51.4m |
| Operating cash used | Not provided quarterly | Not provided quarterly | $67.2m | $43.4m |
Margins are not meaningful because the company reported no revenue. Q3 expense growth reflected higher personnel and stock-based compensation, clinical-trial costs, and public-company and insurance costs. Nine-month R&D expense also rose with increased discovery and preclinical work. Lower interest income, primarily from lower rates, partly offset the larger operating loss.
At September 30, 2020, cash and cash equivalents were $559.3m and investments were $154.2m, totaling $713.5m; current assets were $721.9m and current liabilities $15.7m. The company reported no debt. Nine-month financing cash flow was $426.5m, primarily from its IPO; investing activities provided $158.1m, largely from net investment maturities. Accumulated deficit was $439.5m.
Material changes and unusual items
- On July 20, 2020, the IPO issued 23.0m shares at $20 per share and generated $425.3m in net proceeds. Preferred stock converted into 62.0m common shares. Common shares outstanding were 89.8m at quarter-end.
- A modification to Series C preferred-stock terms was accounted for as an extinguishment and reissuance, creating a $177.8m deemed dividend. This increased Q3 net loss attributable to common stockholders to $213.9m and nine-month loss attributable to common stockholders to $265.5m; it was not an operating expense or cash outflow. Basic and diluted loss per share were $3.00 for Q3 and $9.92 for the nine-month period.
- Q3 stock-based compensation was $11.9m; nine-month expense was $17.4m. The company had $55.8m of unrecognized compensation cost expected to be recognized over a weighted-average 2.64 years.
- The DESRES collaboration was extended through August 2025; its annual fee increased from $1.0m to $7.9m. Potential development milestone payments are up to $7.3m per target, plus sales milestones and royalties; none were due at quarter-end.
Outlook, risks and contingencies
Management estimated that the $713.5m of cash, cash equivalents and investments at quarter-end would fund operating expenses and capital expenditures into 2023, while cautioning that assumptions could prove incorrect. The filing also states the company expects continued and increasing losses for at least the next several years and will need additional capital; no committed external funding source was identified. Management anticipated the RLY-PI3K1047 program would enter IND-enabling studies in 2021. No specific financial revenue or earnings guidance was provided.
Management said enrollment in the two ongoing early-stage trials had continued and it did not then anticipate enrollment interruptions, but COVID-19 could affect trial timing, enrollment, vendors, and operations. Key risks include clinical safety or efficacy failures, enrollment and regulatory delays, reliance on third-party CROs and single-source API suppliers, the DESRES relationship and its proprietary Anton 2 supercomputer, competition, and uncertain patent protection. A September 2020 lease amendment adds approximately 1,824 square feet, with $1.3m of committed rent over the lease term. The company reported no material litigation expected to adversely affect the business and no off-balance-sheet arrangements. Disclosure controls were assessed as effective at September 30, 2020.
Key facts investors should verify
- Whether trial enrollment, safety, and development timelines for RLY-1971 and RLY-4008 have progressed as planned, and whether COVID-19 or companion-diagnostic requirements affect them.
- Whether the stated cash runway into 2023 remains supportable as clinical, discovery, and public-company costs rise; compare operating cash use with available liquidity.
- How the $177.8m Series C deemed dividend affects per-share comparisons, separately from the company’s operating loss and cash burn.
- Whether the higher DESRES annual fee, agreement terms, and dependence on Anton 2 remain economically and operationally manageable.
- Potential dilution and trading effects from equity awards and the expiration of IPO lock-ups; 66.3m shares were subject to 180-day lock-ups expected to expire in January 2021.