Relay Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; financial amounts below are in U.S. dollars. Relay is a clinical-stage precision-medicine biotechnology company with no approved products and no product-sales revenue.
Business and pipeline context
The company’s Dynamo platform combines computational and experimental methods for drug discovery. Lead candidates RLY-4008, RLY-2608 and RLY-1971 were in early clinical development; the company also reported more than five discovery-stage programs. RLY-1971 is partnered with Genentech, which leads its development and commercialization under the license agreement.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.3 million | $0.7 million | $1.1 million | $2.5 million |
| Research and development expense | $66.9 million | $45.0 million | $179.1 million | $120.7 million |
| General and administrative expense | $16.1 million | $14.7 million | $49.6 million | $41.8 million |
| Operating loss | $85.9 million | $61.0 million | $226.4 million | $297.0 million |
| Net loss | $84.2 million | $60.8 million | $223.0 million | $296.4 million |
| Basic and diluted loss per share | $0.76 | $0.66 | $2.04 | $3.20 |
As a pre-commercial company, product gross margins are not applicable. Q3 losses increased year over year as R&D spending rose, principally from clinical-trial activity, higher staffing and platform/preclinical work. Nine-month net loss was lower than in 2021 largely because the prior-year period included $123.0 million of acquired in-process R&D expense and an $11.9 million loss on initial consolidation related to the ZebiAI acquisition.
At September 30, 2022, cash and cash equivalents were $354.6 million and investments were $699.1 million, totaling approximately $1.054 billion; the company described this as $1.1 billion. Nine-month operating cash use was $172.4 million, versus $34.7 million in 2021. Investing cash use was $41.8 million and financing provided $288.7 million, mainly from the September public offering. The company reported no debt outstanding. It said current cash, cash equivalents and investments were expected to fund operating and capital needs into 2025, while cautioning that this estimate depends on assumptions and funds could run out sooner.
Current assets were $1.087 billion and current liabilities $71.4 million. Total liabilities were $168.9 million; these included $60.3 million in operating lease liabilities and a $42.9 million contingent consideration liability. Investment-related accumulated other comprehensive loss was $13.4 million, attributed to unrealized market-value declines. Interest income rose to $3.4 million for the nine-month period from $0.6 million.
Material changes and notable items
- R&D expense increased 48% to $179.1 million for the first nine months, with clinical-trial external costs up $25.9 million and employee-related expense up $18.4 million, according to management.
- Revenue fell as Genentech-related research services declined while the RLY-1971 Phase 1a trial approached completion; the prior-year period also included revenue from transfer of active pharmaceutical ingredient.
- The September 2022 offering raised $284.7 million net from 11.32 million shares sold at $26.50 per share. Shares outstanding increased from 108.2 million at December 31, 2021 to 120.8 million at September 30, 2022.
- Relay issued 301,939 shares to former ZebiAI holders after a platform milestone. The contingent consideration balance was $42.9 million; up to $85 million in milestone payments are payable in shares, and a separate earnout arrangement provides for up to $100 million in cash payments, subject to its terms.
- The company recognized a $3.3 million Q3 increase in the fair value of contingent consideration, compared with a $2.0 million increase in Q3 2021. The nine-month 2022 change was a $1.1 million decrease.
- Taking control of the 60 Hampshire Street facility in July 2022 added $45.8 million of operating lease assets and $38.7 million of lease liabilities. The lease runs through June 2032.
Outlook, commentary and risks
Relay reported interim RLY-4008 data announced in September, including an 88% interim overall response rate among FGFR-inhibitor-treatment-naïve patients with FGFR2-fusion cholangiocarcinoma treated at 70 mg once daily. The company described a single-arm trial in this population as a potential path to support accelerated approval following discussions with the FDA. These are interim findings, not evidence of approval or definitive trial results. In October 2022, after the quarter, the EMA adopted a positive opinion on orphan designation for RLY-4008 for biliary tract cancer. RLY-2608 was being evaluated in a first-in-human trial, including a combination arm with fulvestrant; Genentech began a RLY-1971 combination trial with atezolizumab in August 2022.
Management expects expenses to increase as clinical work on RLY-4008 and RLY-2608 and preclinical programs advance. The company has no product revenue and expects continued losses; it may need additional capital, and future equity financing could dilute shareholders. Key risks include clinical-trial failure or delay, patient enrollment and safety, regulatory uncertainty, reliance on third-party clinical and manufacturing providers and single-source suppliers, and dependence on D. E. Shaw Research and its Anton 2 supercomputer for aspects of the discovery platform. Relay said COVID-19 had not materially disrupted enrollment to date, but noted potential trial, supply-chain and operational effects, alongside inflation, rising interest rates and geopolitical uncertainty.
The filing reported no material litigation and no material changes to contractual obligations. Management concluded disclosure controls and procedures were effective as of September 30, 2022; it reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- RLY-4008’s interim 88% response rate: patient count, follow-up duration, response assessment, safety profile and subsequent mature data.
- The basis and sensitivity of management’s cash-runway estimate into 2025, particularly against rising clinical and operating expenses and the $172.4 million nine-month operating cash use.
- Clinical-development milestones, trial enrollment and timing for RLY-2608 and RLY-1971, including Genentech’s plans and obligations under the collaboration.
- Potential dilution and cash obligations from ZebiAI milestone shares and earnout payments, as well as any future financing needs.
- Investment portfolio exposure to interest-rate changes, the expanded lease commitments, and continued dependence on external clinical, manufacturing and computational partners.