Relay Therapeutics, Inc. — Q3 2021 Form 10-Q
Business and period. Clinical-stage precision-medicine company using its Dynamo platform to discover therapies, with a focus on oncology and genetic diseases. This unaudited filing covers the quarter and nine months ended September 30, 2021. Relay had no approved products and no product-sale revenue.
Financial performance and position
Amounts below are USD millions, except per-share data.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | 0.7 | 0.0 | 2.5 | 0.0 |
| Research and development expense | 45.0 | 24.4 | 120.7 | 67.7 |
| General and administrative expense | 14.7 | 12.2 | 41.8 | 23.0 |
| Net loss | (60.8) | (36.1) | (296.4) | (87.7) |
| Basic and diluted loss per share | $(0.66) | $(3.00) | $(3.20) | $(9.92) |
- Q3 collaboration revenue was primarily for Genentech RLY-1971 research and development services. Nine-month revenue also included transfer of active pharmaceutical ingredient. Revenue was small relative to expenses; profit and operating margins are not meaningful.
- Nine-month operating cash use was $34.7 million, versus $67.2 million in 2020. The 2021 figure includes $74.3 million from collecting Genentech receivables and is not a simple measure of recurring cash burn. Investing activities used $186.8 million, including net investment purchases and $25.2 million cash paid for ZebiAI; financing provided $4.1 million.
- At September 30, cash and cash equivalents were $228.6 million and investments were $387.9 million, totaling $616.5 million. Current assets were $639.3 million and current liabilities $28.5 million. The company reported no debt outstanding. Accumulated deficit was $700.6 million.
- In October, after quarter-end, Relay completed an offering of 15.2 million shares at $26.50 per share, with estimated net proceeds of $381.9 million. Management said quarter-end cash, cash equivalents and investments plus these proceeds should fund operating and capital needs into at least 2025, subject to assumptions that may prove wrong.
Changes, transactions and business developments
- Q3 R&D expense rose $20.6 million year over year, principally from higher outside and consulting services, employee costs, and clinical-trial spending. Nine-month R&D increased $53.0 million, with growth in headcount, preclinical work and clinical trials.
- Nine-month results included $123.0 million of acquired in-process R&D expense and an $11.9 million loss on initial consolidation of a variable-interest entity, both related to the April ZebiAI acquisition. Relay also recorded a $2.0 million increase in contingent-consideration fair value. These items materially increased the reported 2021 loss.
- ZebiAI consideration included approximately $20.0 million cash and shares valued at about $60.8 million, plus potential milestone payments of up to $85.0 million in shares and earnouts of up to $100.0 million in cash. The balance sheet reported a $50.5 million contingent-consideration liability; the fair value note reports $45.5 million for the Level 3 milestone liability.
- In August, Relay entered an EQRx discovery collaboration. Relay leads discovery through IND filing; EQRx leads clinical development, regulatory work and commercialization. Costs and net profits or losses are generally shared equally, subject to opt-out rights.
- Relay’s new 60 Hampshire Street lease covers approximately 41,474 square feet, with $55.7 million of fixed payments over a ten-year term expected to begin in 2022. No lease asset or liability was recorded at quarter-end because accounting commencement had not occurred.
Outlook, commentary and risks
- Pipeline: RLY-1971 and RLY-4008 were in first-in-human trials; RLY-2608 was in IND-enabling studies, with a first-in-human study planned for the first half of 2022. Relay reported five additional discovery-stage programs.
- In October 2021, Relay announced interim RLY-4008 data from 49 subjects, with a September 9 cutoff. The company said results suggested strong FGFR2 inhibition and tumor-size reductions in approximately 80% of patients treated. These were interim company-reported findings, not final trial results.
- Relay expects substantial continuing losses and rising expenses as it advances its pipeline, expands operations and supports public-company requirements. Future funding needs depend on clinical progress, costs, collaborations and other factors; additional financing may dilute shareholders or require rights concessions.
- Genentech has RLY-1971 development and commercialization rights and may terminate the agreement for convenience. Relay is eligible for further milestone and royalty payments, but these depend on future development, regulatory and commercial achievements. Relay may elect a U.S. 50/50 profit/cost share under specified terms.
- Material risks include clinical failure or delays, patient enrollment and safety issues, reliance on third-party trial and manufacturing providers and single-source API suppliers, dependence on D. E. Shaw Research and its Anton 2 supercomputer, intellectual-property protection, collaboration execution, and potential COVID-19 disruption. Management said enrollment was continuing and no interruption was then anticipated, while noting uncertainty about pandemic effects.
- Management stated disclosure controls were effective as of September 30, 2021, with no material quarterly change in internal control over financial reporting. No material litigation was reported.
Important facts for investors to verify
- Review subsequent RLY-4008 clinical updates and distinguish interim findings from mature, independently verified efficacy and safety data.
- Track RLY-2608’s IND-enabling progress and the stated first-in-human timing, as well as trial enrollment and development costs across programs.
- Assess actual cash use after the October offering against management’s runway estimate into at least 2025; note that reported operating cash use benefited from a large receivable collection.
- Check the accounting and potential dilution or cash exposure from ZebiAI contingent milestones and earnouts, including the difference between the balance-sheet liability and the Level 3 milestone fair value disclosed.
- Monitor Genentech and EQRx collaboration milestones, cost-sharing terms, opt-out provisions, and any resulting revenue; potential milestone and royalty amounts are conditional, not assured.
- Consider the long-term Hampshire Street lease commitment and reliance on D. E. Shaw Research, CROs, manufacturers and single-source API suppliers.