Relay Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial figures are rounded to millions unless stated otherwise.
Business context and reporting period
Relay is a clinical-stage precision-medicine company using its Dynamo drug-discovery platform. Its lead candidates, RLY-4008, RLY-2608 and RLY-1971, were in clinical development; the company also reported more than five discovery-stage programs. It had no approved products and generated no product-sales revenue. Reported revenue was primarily collaboration and license revenue, principally under its Genentech agreement.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.4m | $0.8m | $0.8m | $1.8m |
| Research and development expense | $60.5m | $45.1m | $112.2m | $75.8m |
| General and administrative expense | $17.5m | $14.4m | $33.5m | $27.2m |
| Net loss | $76.8m | $193.4m | $138.8m | $235.6m |
| Net loss per share | $0.71 | $2.10 | $1.28 | $2.58 |
| Operating cash flow | Not presented separately | Not presented separately | $(106.3)m | $18.5m |
At June 30, 2022, cash and cash equivalents were $107.7m and investments were $730.3m, totaling approximately $838.0m. Current assets were $855.8m and current liabilities were $43.9m. Total liabilities were $109.8m, including lease liabilities and contingent consideration; the company reported no debt outstanding. Stockholders’ equity was $779.6m and accumulated deficit was $906.9m. There was no meaningful operating margin given the company’s development-stage operations and minimal revenue.
For the first half, cash, cash equivalents and restricted cash declined by $172.4m to $110.3m. Investing activities used $69.0m, mainly net investment purchases and equipment purchases; financing activities provided $2.9m. Available-for-sale investments had $11.9m of unrealized losses, which the company attributed to interest-rate changes rather than credit losses.
Material changes versus the prior comparable period
- R&D expense increased $15.4m in Q2 and $36.4m for the first half, primarily due to clinical-trial spending, preclinical programs and higher employee costs.
- Net loss narrowed substantially year over year, but the comparison benefited from the absence of 2021 ZebiAI acquisition charges: $123.0m of in-process R&D expense and an $11.9m loss on initial consolidation. First-half 2022 also included a $4.4m gain from a lower estimated fair value of contingent milestone consideration.
- Revenue declined $0.5m in Q2 and $1.0m for the first half, largely reflecting lower Genentech-related services and, for the first half, no repeat of 2021 revenue from transfer of active pharmaceutical ingredient.
- First-half operating cash flow changed from $18.5m provided in 2021 to $106.3m used in 2022. The 2021 comparison included substantial cash inflows from changes in operating assets and liabilities.
- Cash and cash equivalents fell from $280.1m at year-end 2021 to $107.7m, while investments rose from $678.0m to $730.3m. Total cash, cash equivalents and investments declined from approximately $958.1m to $838.0m.
Outlook, management commentary, risks and unusual items
- Management estimated that cash, cash equivalents and investments would fund planned operating expenses and capital expenditures into at least 2025. The filing cautions that this estimate depends on assumptions and resources could be exhausted sooner. The notes separately state that existing resources would fund planned needs for at least one year from issuance of the financial statements; investors should clarify the assumptions underlying these statements.
- Management expects expenses and operating losses to increase as clinical development of RLY-4008 and RLY-2608 and preclinical programs advance. Additional capital will be needed over time; the company said it had no committed external funding source. Its $300m at-the-market facility had no shares sold through June 30, 2022.
- RLY-4008: Following an FDA end-of-Phase 1 meeting, Relay planned a single-arm trial in FGFR-inhibitor-naïve patients with FGFR2-fusion cholangiocarcinoma, with the aim of potentially supporting accelerated approval. Interim data shared with the FDA, with an April 19, 2022 cutoff, showed confirmed partial responses in 8 of 13 such patients treated on the once-daily schedule, including all 4 treated at the proposed 70 mg daily dose. The safety database included 115 patients. These are interim results from a small patient group, not confirmatory evidence of approval or benefit.
- RLY-2608: The first-in-human trial began in December 2021; in April 2022 the company started a dose-escalation arm combining it with fulvestrant in a defined breast-cancer population.
- RLY-1971 development and commercialization are subject to the Genentech collaboration. Relay reported $0.5m of Genentech license revenue for the first half and a $15.0m liability for a previously received milestone payment that may be repayable if Relay elects a U.S. profit/cost share.
- ZebiAI-related contingent consideration included up to $85m of milestone payments and up to $100m of earnout payments under the acquisition terms. The reported contingent-consideration liability was $45.9m at June 30; its fair-value estimate can change with milestone probability, timing and interest rates.
- Principal risks include clinical-trial outcomes and enrollment, regulatory and companion-diagnostic requirements, reliance on third-party manufacturers and clinical-trial operators, single-source supply, intellectual-property protection, dependence on D. E. Shaw Research and its Anton 2 supercomputer, and future financing needs. The filing also discusses potential disruption from COVID-19, supply-chain conditions, inflation and geopolitical uncertainty.
- The company reported no legal proceedings that management considered probable to have a material adverse effect. Management concluded disclosure controls were effective as of June 30, 2022 and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Cash-burn assumptions supporting the “into at least 2025” runway estimate, and how that estimate reconciles with the notes’ shorter wording.
- Updated RLY-4008 clinical data, durability and safety, the final trial design and FDA requirements for any accelerated-approval application.
- RLY-2608 trial progress, patient enrollment and supply readiness across the clinical programs.
- Changes in R&D spending, operating cash use and the timing and terms of any additional financing.
- Potential dilution or cash obligations from ZebiAI milestone and earnout terms, and the Genentech milestone repayment/profit-share provision.
- Whether collaboration, manufacturing and computational-platform dependencies remain reliable and on acceptable terms.