Relay Therapeutics, Inc. (NASDAQ:RLAY) is a biotechnology company focused on developing innovative therapies for cancer treatment, particularly in the field of PI3K inhibitors for advanced breast cancer. As the company approaches critical data readouts and potential clinical milestones, investors and analysts are closely watching its progress in a competitive oncology landscape.
Pipeline and Product Development
At the forefront of Relay's pipeline is RLY-2608, a PI3Kalpha inhibitor currently in development for HR+/HER2- breast cancer. The company is on track to release Phase 1 expansion data for RLY-2608 in combination with fulvestrant for second-line or higher HR+/HER2- breast cancer by the fourth quarter of 2024. This data readout is highly anticipated, as it could potentially position Relay as a strong competitor in the breast cancer treatment market.
Analysts estimate that the market opportunity for RLY-2608 could reach up to $4 billion, highlighting the significant potential of this drug candidate. The company's approach has been further validated by Roche's Phase 3 success with inavolisib in a similar patient population, which serves to support Relay's strategy in this therapeutic area.
In addition to RLY-2608, Relay has announced three new programs expected to enter clinical stages in 2025:
1. A PI3Kalpha inhibitor for vascular malformations, slated for Q1 2025
2. A non-inhibitory chaperone for Fabry disease, projected for the second half of 2025
3. An NRAS-selective inhibitor for NRAS mutant solid tumors, also forecasted for the second half of 2025
These new programs demonstrate Relay's commitment to expanding its pipeline and diversifying its potential revenue streams.
Competitive Landscape
Relay faces competition in the PI3K inhibitor space, most notably from Scorpion Therapeutics' STX-478. Recent data presented at ESMO 2024 showed that STX-478 achieved a monotherapy objective response rate (ORR) of 23% in advanced breast cancer with a favorable safety profile. While this data appears to be slightly more favorable than Relay's RLY-2608 data, analysts note that Relay maintains a first-mover advantage, with a pivotal study expected to start in 2025.
The company's position is further strengthened by its collaboration with Pfizer (NYSE:PFE) in HR+/HER2- breast cancer treatment. This partnership focuses on combining Relay's expertise with a CDK4 inhibitor, which has the potential to reduce off-target toxicities often associated with cancer treatments.
Financial Position
Relay Therapeutics has reiterated its cash runway into the second half of 2026, indicating financial stability for the near future. As of the latest financial reports, the company's market capitalization stands at approximately $1.18 billion. However, Relay is still operating at a loss, with estimated earnings per share (EPS) for the following two fiscal years at -2.94 and -2.86, respectively.
Despite these losses, some analysts view Relay's valuation as attractive. The company's enterprise value of approximately $150 million, trading at 1.1 times cash, is below the average of 2.8 times for comparable companies in the sector.
Bear Case
How will the termination of the Roche collaboration impact Relay's pipeline and financials?
The recent termination of Relay's collaboration agreement with Roche/Genentech for the SHP2 inhibitor migoprotafib/RLY-1971 represents a setback for the company. This development has led to the removal of RLY-1971 contributions from financial models and a reduction in some analysts' price targets. The loss of potential revenue from this collaboration could put additional pressure on Relay's finances and narrow its pipeline focus.
However, it's worth noting that Relay has received a total of $122 million from Genentech throughout the collaboration, which has contributed to its current cash position. The company's focus has now shifted more intensely to RLY-2608 and its other pipeline candidates.
Can Relay compete effectively against larger pharmaceutical companies in the PI3K inhibitor space?
Relay faces significant competition from larger, more established pharmaceutical companies in the development of PI3K inhibitors. For instance, Novartis (SIX:NOVN)'s Capivasertib has already been approved and is quickly becoming the preferred agent in the second-line setting for breast cancer treatment, with sales reaching $142 million in the first half of 2024.
The company's ability to compete effectively will largely depend on the efficacy and safety profile of RLY-2608 compared to existing treatments and other drugs in development. While Relay has shown promising early data, it will need to demonstrate clear differentiation or superiority to capture significant market share in this competitive space.
Bull Case
How might positive data for RLY-2608 in Q4 2024 impact Relay's stock price and market position?
Positive Phase 1 expansion data for RLY-2608 in Q4 2024 could significantly boost Relay's stock price and strengthen its market position. Analysts are looking for a progression-free survival (PFS) benchmark of 5.5-6 months. If RLY-2608 meets or exceeds this benchmark while demonstrating a favorable safety profile, it could position the drug as a strong contender in the breast cancer treatment landscape.
Such positive data could potentially lead to:
1. An increase in analyst price targets and ratings
2. Greater interest from institutional investors
3. Potential partnership opportunities or increased terms with existing partners
4. Acceleration of plans for a Phase 3 trial, which is currently anticipated to begin in 2025
What is the potential upside if Relay's new programs entering the clinic in 2025 prove successful?
The success of Relay's new programs entering the clinic in 2025 could significantly diversify the company's pipeline and reduce its reliance on RLY-2608. Positive early clinical data from these programs could:
1. Demonstrate the broader applicability of Relay's drug discovery platform
2. Open up new market opportunities beyond breast cancer
3. Attract potential collaboration partners for these new indications
4. Increase the overall valuation of the company by expanding its potential revenue streams
Successful advancement of these programs could position Relay as a multi-product biotech company, potentially leading to a re-rating of its stock and increased investor confidence in its long-term prospects.
SWOT Analysis
Strengths:
- First-mover advantage in PI3K inhibitor development
- Strong cash position with runway into 2026
- Collaboration with Pfizer for breast cancer treatment
- Innovative drug discovery platform
Weaknesses:
- Operating losses with negative EPS forecasts
- Termination of Roche collaboration for SHP2 inhibitor
- Reliance on success of RLY-2608 in near term
Opportunities:
- Large market potential for RLY-2608 in breast cancer
- New programs entering clinic in 2025
- Potential for accelerated development through combination trials
- Expansion into new therapeutic areas
Threats:
- Competition from larger pharmaceutical companies
- Regulatory and clinical trial risks
- Potential for negative clinical data impacting stock price
- Rapidly evolving treatment landscape in oncology
Analysts Targets
- Barclays: $17 (September 25th, 2024)
- JMP Securities: $21 (September 17th, 2024)
- Barclays: $17 (September 16th, 2024)
- Barclays: $17 (September 10th, 2024)
- Barclays: $14 (August 7th, 2024)
- Barclays: $14 (July 26th, 2024)
- JMP Securities: $21 (July 18th, 2024)
- Barclays: $15 (June 18th, 2024)
- Barclays: $15 (June 7th, 2024)
- Barclays: $15 (June 6th, 2024)
- Barclays: $15 (May 24th, 2024)
- Barclays: $15 (May 10th, 2024)
Relay Therapeutics stands at a critical juncture in its development, with key data readouts and clinical milestones on the horizon. While the company faces challenges in a competitive oncology landscape, its innovative approach to drug discovery and strong financial position provide a foundation for potential growth. Investors will be closely watching the upcoming RLY-2608 data in Q4 2024, which could significantly impact the company's trajectory in the biotechnology sector.
This analysis is based on information available up to September 30, 2024.
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