Relay Therapeutics: It Could Be Time To 'Be Greedy When Others Are Fearful'

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Investment Overview - Cash Intensive But Cash Rich - At Current Price Relay Offers The Patient Investor Value

I person covered Relay Therapeutics (NASDAQ:RLAY) respective times for Seeking Alpha since nan institution completed what was, at nan time, nan 3rd largest biotech IPO successful history, raising ~$400m astatine a value of $20 per stock successful July 2020.

Relay already had raised $520m from a backstage backing information that included participants specified arsenic nan SoftBank Vision Fund, Google Ventures, nan Biotechnology Value Fund, and Third Rock Ventures, giving it a warfare thorax of >$1bn.

In its Q322 10Q submission Relay describes itself arsenic follows:

We are a clinical-stage precision medicine institution transforming nan supplier find process by combining leading-edge computational and experimental technologies pinch nan extremity of bringing life-changing therapies to patients.

As we judge we are among nan first of a caller breed of biotech created astatine nan intersection of disparate technologies, we purpose to push nan boundaries of what's imaginable successful supplier discovery.

One rumor pinch this caller breed of supplier find companies is that their cutting separator exertion platforms thin to beryllium superior intensive. As of Q322, Relay's full operating expenses for nan twelvemonth were $228m, compared to $299m successful nan anterior twelvemonth period, and nett nonaccomplishment was $223m, versus $296m successful nan anterior twelvemonth period.

In fairness, Relay has been capable to complete further astatine nan marketplace fundraisings of ~$350m successful October 2021, and $300m successful September 2022, meaning arsenic of Q322, Relay reported a rate position of $1.1bn. That will beryllium capable to money operations until 2025, guidance says.

The fundraisings - and nan biotech carnivore marketplace of 2022, which saw investors propulsion money retired of nan biotech sector, searching for safer havens that offered nearer word commercialized gross opportunities, person dragged Relay's stock value down from a post-IPO value of >$50, to a worth arsenic debased arsenic $14 arsenic of December past year.

At today's stock value of $17.5, Relay still boasts a marketplace headdress valuation >$2bn, which is precocious for a supplier developer that has not progressed immoderate plus beyond Phase 1 objective studies, but besides perchance charismatic - fixed nan rewards connected connection - for investors prepared to beryllium patient.

Pipeline Focus - FGFR2 Inhibitor Offers Approval Shot, Label Expansions, Validation of Approach

Relay Therapeutics pipeline (investor presentation)

As we tin spot supra Relay's precocious rate walk has allowed nan institution to create a promising pipeline of assets utilizing its Dynamo platform, which nan institution says:

Integrates an array of leading-edge computational and experimental approaches designed to supplier macromolecule targets that person antecedently been intractable.

Near term, Relay's commercialized opportunities are mini scale. Its astir precocious plus to day is RLY-4008, an oral mini molecule inhibitor of fibroblast maturation facet receptor 2 ("FGFR2"), which is expected to participate a pivotal study this twelvemonth successful patients pinch Cholangiocarcinoma ("CCA"), different known arsenic bile duct crab - expressing FGFR2 mutations.

CCA has a diligent organization of ~1,000 successful nan US, Relay estimates, and truthful represents a gross opportunity that's apt <$100m per annum. More encouraging, however, is nan imaginable for expanding nan supplier into caller indications.

The FDA has approved 3 FGFRs successful caller years:

• Incyte's (INCY) Pemazyre (pemigatinib) was approved successful April 2020 successful unresectable locally precocious aliases metastatic CCA exhibiting FGFR2 fusion, earning $83.5, of revenues successful FY22.
• Privately-owned Taiho Oncology's Lytgobi (futibatinib) was approved successful October past twelvemonth for curen of intrahepatic cholangiocarcinoma harboring FGFR2 cistron fusions.
• Janssen Pharmaceuticals' Balversa (erdafitinib) was approved successful April 2019 for curen of patients pinch locally precocious aliases metastatic urothelial (bladder) cancer. Sales person not been disclosed by Johnson & Johnson (JNJ), Janssen's genitor company, though JNJ apparently believes nan supplier tin scope blockbuster (>$1bn per annum) income based connected explanation description opportunities.

Relay believes thing akin to Janssen successful nan lawsuit of RLY-4008. Using its higher solution technology, Relay was capable to place that targeting FGFR2 arsenic opposed to FGFR1 - arsenic Pemazyre, Lytgobi, and Balversa do - gives its campaigner superior selectivity, target inhibition and tolerability - and Relay has produced nan information to beryllium this thesis.

limitations of existent FGFRis (investor presentation)

As we tin spot supra nan 3 approved FGFR targeting narcotics person been capable to make an mean 36%-42% Objective Response Rate ("ORR") successful objective studies successful CCA. Interim information from Relay's Phase 1 ReFocus study nevertheless has shown an ORR of 88% (15 of 17 patients) astatine nan dose level - 70mg QD - it will usage successful its pivotal study of nan supplier successful CCA. Across each doses, nan ORR achieved was 63% (24 of 38 patients).

Admittedly, RLY-4008 has not been capable to make immoderate complete responses ("CRs") truthful acold - only partial responses ("PRs"), but astatine nan clip of nan information cutoff, 13 of 15 precocious dose responders remained successful curen and arsenic importantly, Relay reported from a information position that:

Most AEs person been expected FGFR2-on target, low-grade, monitorable, manageable and mostly reversible

ReFocus Trial dose description & pivotal cohort overview (investor presentation)

As above, Relay is now successful nan process of initiating a pivotal fusion affirmative CCA description cohort that could perchance pave nan measurement for an accelerated support of RLY-4008 successful CCA, possibly arsenic early arsenic 2024 fixed nan cohort is expected to beryllium afloat enrolled by nan extremity of nan year.

And conscionable arsenic importantly - for investors looking for much than a <$100m gross opportunity - Relay besides will initiate a non-CCA cohort looking astatine nan expertise of RLY-4008 to target different types of coagulated tumor.

FGFR2 alterations observed successful aggregate tumor types (investor presentation)

The truth that RLY-4008 tin target FGFR mutations and amplifications arsenic good arsenic fusion perchance increases nan candidates' addressable marketplace compared to its rivals, and arsenic we tin spot successful nan mediate of nan supra descent from Relay's latest investor presentation, FGFR alterations are observed crossed aggregate tumor types, including pancreatic, tegument / melanoma, lung and bosom crab - markets that adhd up to an addressable marketplace that easy exceeds $50bn.

To summarize, having spent apt >$600m successful 2021 and 2022, investors person a correct to request tangible signs of progress, and Relay has broadly delivered that progress.

That's not to propose that RLY-4008 is simply a slam dunk that's guaranteed to validate Relay's attack pinch a CCA approval, and past make nan institution profitable by commanding blockbuster sales, but neither is it excessively overmuch of a agelong to judge that whitethorn beryllium nan case.

Establishing A Breast Cancer Franchise

Obviously Relay's opportunities agelong beyond its FGFR inhibitor candidate, moreover if that's nan astir salient near-term commercialized opportunity.

In bosom cancer, Relay has eager plans to found a supplier franchise and its attack / thesis is akin to nan FGFR opportunity. With its precocious modeling tools, Relay has been capable to create what it believes are nan first afloat magnitude structures of a pan-mutant and isoform-selective phosphoinostide 3 kinase alpha, aliases PI3Ka for short.

In doing so, Relay has been capable to place a "novel allosteric pocket" to target - arsenic opposed to nan "orthosteric," much easy accessible but perchance little promising sites that accepted supplier find approaches person focused upon. Relay's campaigner is named RLY-2608.

Once again - though this clip based connected preclinical studies only - Relay believes that its PI3KA has superior properties to e.g. Danish pharma elephantine Novartis' Piqray (alpelisib), which earned ~$370m of revenues successful FY21, aliases Roche's (OTCQX:RHHBY) Phase 3 shape campaigner Inavolisib, besides indicated for bosom cancer.

RLY-2608 will soon go nan first mutant (as opposed to chaotic type) selective inhibitor to participate nan clinic, backed by encouraging preclinical information arsenic shown below.

favourable preclinical floor plan of RLY-2608 (investor presentation)

One limb of nan study will attraction connected RLY-2608 positive fulvestrant - a type of hormone therapy - successful patients pinch PIK3CA mutated bosom cancer, while nan different will look astatine different coagulated tumors that definitive PIK3CA specified arsenic ovarian, cervical and caput and cervix cancers. Both arms of nan study will past participate a dose description shape pinch 15 patients successful each indication.

The first objective information update has been promised for nan first half of this year, which is perchance beardown upside catalyst for investors to look guardant to (although disappointing results will conversely resistance nan stock value down).

The scheme is to past present 2 different members of its PI3KA franchise into nan mix: RLY5836 - which has a "similar objective profile, but different chemic properties" to RLY-2608, according to Relay, followed by an "H1047R-specific" campaigner - H1047R being a "hotspot" mutation that's recovered wrong nan kinase domain of PI3KA.

And that's not each - adjacent will travel a selective Cyclin-dependent kinase 2 ("CDK2") plus - CDK2 being a cistron encoding a macromolecule associated pinch crab compartment proliferation - followed by an Estrogen Receptor ("ERα") degrader - macromolecule degradation being an breathtaking but unproven method of dipsosing of unwanted proteins wrong a cell.

At this early shape successful nan improvement rhythm it's astir apt earthy for immoderate prospective investor successful Relay to harbor doubts arsenic to whether each of these caller plus types will adhd up to much than nan sum of their parts, and genuinely beryllium capable to present a commercialized shape bosom crab franchise.

The bosom crab marketplace is expected to scope ~$70bn successful size by 2030, and is typically nan domain of large pharmas specified arsenic Gilead Sciences (GILD), Roche, Johnson & Johnson, Pfizer (PFE) etc., which will not want to loosen their grip connected nan space.

With that said, Relay's attack has a definite magnitude of preclinical validation to it, and nan institution is delivering connected its committedness - namely to create much blase modeling of oncogenic drivers and mutations and place ways of targeting them much effectively.

I would not beryllium overly amazed if Relay's Dynamo motor gives nan institution a flimsy separator complete moreover a ample Pharma concern. If you besides find yourself persuaded by Relay's advancement to date, past investing today, erstwhile nan institution is worthy a fraction of what it was post-IPO, looks for illustration a sensible move.

Relay is trading astatine conscionable 2x cash, aft all, and we could spot it commercialise a first plus wrong 2 years, which successful my view, marks it retired arsenic 1 of nan astir promising and salient precision oncology companies, pinch a reasonable chance of building - from nan crushed up - a genuinely innovative one-stop-shop for bosom crab treatment.

If specified a business were to arise, investors tin remainder assured that Relay's stock value is guaranteed to emergence by astatine slightest 2/3 times.

Genentech Collaboration An Additional Fillip

One interest aliases mobility investors whitethorn tally on nan lines of "if Relay's level is truthful impressive, why is Big Pharma not queueing up to partner pinch its technology?"

In Relay's case, however, it does person an ongoing business pinch Genentech, which is Roche's supplier improvement subsidiary, complete an inhibitor of Src homology region 2 domain-containing phosphatase-2, aliases SHP2 sanction RLY-1971. This campaigner entered a Phase 1 study successful 2020, and according to Relay's Q322 10Q submission:

Genentech initiated nan cohort of RLY-1971 successful operation pinch GDC-6036, its KRAS G12C inhibitor, successful a Phase 1b proceedings successful July 2021, and a Phase 1b proceedings of RLY-1971 successful operation pinch atezolizumab successful August 2022.

KRAS is an breathtaking druggable target that is targeted by 2 recently-approved, drugs, Amgen's (AMGN) Lumakras and Mirati Therapeutics (MRTX) Krazati. Both are expected to present blockbuster sales, though a adjacent procreation campaigner could amended connected some narcotics information and efficacy profiles, and possibly grow beyond later statement lung cancer. Atezolizumab is Roche's reply to Merck's >$20bn trading crab wonderment supplier Keytruda - an immune checkpoint inhibitor that often useful amended erstwhile paired pinch an adjuvant therapy.

Genetech Relay has received a $75m upfront costs and there's an action to participate into a profit / costs sharing agreement, aliases to person up to $685m successful milestone payments, positive royalties connected nett sales. A useful further root of revenue, while nan business raises a imaginable M&A opportunity that would apt return spot astatine a important premium to Relay's existent valuation.

Relay whitethorn not person secured arsenic galore aliases arsenic precocious worth deals pinch large pharma arsenic immoderate supplier developers person - to sanction a couple, Arrowhead (ARWR) and Poseida Therapeutics (PSTX) - but arguably Relay does not request to, since it has >$1bn rate and possibly prefers not to sacrifice early revenues for nan adjacent word rate injections specified partnerships provide.

Conclusion - I Like Relay's Outlook Since I Feel I Know What I'm Investing In

An aged finance adage runs that you should ne'er put successful what you don't understand, and truthful it whitethorn sound foolish of maine to opportunity that I judge successful Relay's exertion and approach. Since I'm not a biophysicist aliases biochemist, really tin I beryllium judge I americium not having nan wool pulled complete my eyes?

To reply that, firstly I really find that Relay's presentations and investor communications are telling maine a communicative that makes a definite magnitude of sense. Even if I don't understand precisely really e.g. nan compound mapping works, having followed Relay for respective years nan consistency of attack - and of messaging - impresses me.

From nan outset Relay has been clear astir really it will usage its supplier find motor and what it's looking for. The constitution of specified a promising pipeline successful specified a short abstraction of clip validates nan approach, successful my view.

Outlining an full attack to building a bosom crab franchise to a layman cannot beryllium an easy task, but I personally find each supplier type identified and nan explanation of really it will beryllium utilized successful a objective proceedings some acquainted successful that I'm alert narcotics pinch these mechanisms of action are successful precocious demand, and innovative, successful that it makes consciousness really they whitethorn beryllium utilized together.

Secondly, it whitethorn only beryllium a mini market, but Relay has a genuine changeable astatine a supplier support wrong nan adjacent 2 years. When you look astatine what rival developers person done successful nan aforesaid FGFR space, it's difficult not to beryllium impressed by Relay's data, and there's apt a bona fide opportunity successful play to grow nan explanation of RLY-4008 quickly upon a first approval.

Thirdly, a wise investor erstwhile advised that I should "be greedy erstwhile others are fearful." Hedge costs and task superior mostly turned its backmost connected Relay successful 2022, but for those who are prepared to beryllium much diligent than institutions that person customers to impressment pinch short-term yields and upside, Relay banal looks inexpensive today, successful my view.

$2.1bn is still a important valuation for a pre-commercial institution that is astatine slightest 18 months distant from a first afloat support successful a mini market, but if that continues to beryllium nan measurement nan marketplace thinks astir Relay, I'd beryllium broadly happy to make nan stake that they underestimate this company, its technology, and its pipeline.