Relay Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. Relay is a clinical-stage precision-medicine company focused on drug discovery and oncology; it had no approved products and generated no product revenue.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $21.7 | $16.4 | $43.4 | $29.6 |
| General and administrative expense | $6.1 | $3.5 | $10.8 | $6.7 |
| Total operating expense | $27.7 | $19.9 | $54.2 | $36.3 |
| Net loss | $26.7 | $17.5 | $51.6 | $31.7 |
| Net loss per share | $6.06 | $5.28 | $12.06 | $9.90 |
- Cash and liquidity at June 30: Cash and cash equivalents were $137.1 million and investments were $175.2 million, totaling $312.2 million. Current assets were $315.9 million versus current liabilities of $12.8 million.
- Cash flow, six months: Operating activities used $43.2 million; investing activities provided $138.0 million, mainly from investment maturities; financing activities provided $0.3 million. Cash, cash equivalents and restricted cash ended at $137.9 million.
- Debt: No debt outstanding. The filing reports no material interest-rate sensitivity from a hypothetical 100-basis-point adverse movement.
- Margins: Not meaningful because the company had no revenue.
Changes versus prior comparable periods
- Q2 operating expenses increased $7.8 million year over year, and net loss widened $9.2 million. For the first half, operating expenses increased $17.9 million and net loss widened $19.9 million.
- Higher R&D reflected increased personnel and outside research costs, broader discovery and preclinical activity, and the start of RLY-1971 Phase 1 trial expenses. Higher G&A primarily reflected personnel and stock-based compensation.
- Interest income declined: to $1.0 million in Q2 from $2.4 million, and to $2.6 million for the first half from $4.6 million, reflecting lower interest rates and investment balances.
- Cash and investments fell from $355.8 million at year-end 2019 to $312.2 million at June 30, 2020, while operating cash use increased from $25.9 million to $43.2 million for the first half.
Outlook, developments and risks
- After quarter-end, the IPO closed on July 20, 2020: 23.0 million shares at $20 per share generated net proceeds of $424.8 million. Preferred shares converted into 61,992,534 common shares. Management estimated that June 30 cash, cash equivalents and investments plus IPO proceeds would fund planned expenses and capital needs into 2023; this estimate depends on assumptions and could prove wrong.
- RLY-1971 entered Phase 1 in Q1 2020; RLY-4008 entered Phase 1 in Q3 2020. Management expected RLY-PI3K1047 to enter IND-enabling studies in 2021. These are development plans, not assurances of clinical or regulatory success.
- COVID-19 precautions could affect trial timelines, enrollment, research capacity, suppliers and costs. The company said it had continued enrolling RLY-1971 and did not then anticipate enrollment interruptions, while continuing to assess potential effects.
- The D.E. Shaw Research collaboration was extended to August 2025 and its annual fee increased from $1.0 million to $7.9 million beginning August 16, 2020. The agreement also includes potential milestone payments, sales milestones and royalties; no milestone or royalty payments were due at June 30.
- Relay expects substantial ongoing losses and higher R&D and public-company costs. Key risks include early-stage clinical uncertainty, regulatory and manufacturing challenges, reliance on third parties and single-source API suppliers, intellectual-property risks, and the need for future financing.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective as of June 30, 2020.
Important facts for investors to verify
- Whether clinical-trial enrollment, safety, efficacy and development timelines support the stated plans for RLY-1971, RLY-4008 and RLY-PI3K1047, including any COVID-19 effects.
- Cash burn and the assumptions behind management’s funding-into-2023 estimate, including spending after the IPO and the higher D.E. Shaw annual fee.
- The terms and potential financial impact of the D.E. Shaw collaboration’s milestones, royalties and intellectual-property arrangements.
- Post-IPO share count, preferred-stock conversion, outstanding options and other potential dilution; the filing reported 89,974,876 common shares outstanding as of August 27, 2020.
- Whether additional capital or partnerships will be needed, and on what terms, if development costs or timelines exceed expectations.