Relay Therapeutics Stock: Tapping Into An Unmet Need At A High Price Tag (NASDAQ:RLAY)

Topline Summary

Relay Therapeutics (NASDAQ:RLAY) is a clinical-stage biotech working on novel small molecule inhibitors of different actionable targets in cancer medicine. Using computational molecular dynamics, they hope to improve on targeted therapies through exquisite understanding of interactions between proteins and potential drugs of interest. Their lead agent of interest is an inhibitor of FGFR that is targeted toward an uncommon form of liver cancer, and they have other interesting targeted irons in the fire. The pipeline’s hype has driven a lot of interest in the stock, striking a valuation over $1 billion (driven in large part to the company’s massive coffers).

I think there’s a lot of time yet to watch and wait on this one, waiting for a more opportune buy-in time as their high-risk projects continue to mature.

Pipeline Overview

Lirafugratinib (RLY-4008)

It’s easy to argue that lirafugratinib is RLAY’s main shot on goal as far as clinical pipeline. This FGFR inhibitor is being tested mainly in the context of intrahepatic cholangiocarcinoma (an uncommon tumor of the biliary tract) that has an FGFR2 gene rearrangement. This is one of the more common molecular abnormalities that can show up in patients with cholangiocarcinoma, and drugs like pemigatinib and futibatinib have made significant headway into improving outcomes for patients.

But, in a tale as old as the field of targeted therapy, pemigatinib and futibatinib both run into similar issues with respect to disease progression. At some point, you can expect that the tumor will progress on these agents, usually through some kind of acquired mutation. Switching therapy to another approved FGFR inhibitor may have some benefit, but that is not definitive.

Moreover, FGFR2 can also be activated through overexpression (making too much protein by the cancer cell) or other kinds of mutations that are not gene rearrangements. These are not effectively inhibited by pemigatinib and the other first generation of approved drugs, further narrowing the pool of patients who might benefit.

In early clinical study, lirafugratinib has demonstrated some activity addressing both of these issues. The latest update of phase 1 study in cholangiocarcinoma showed the following (in summary):

• 73% response rate in patients with FGFR inhibitor-naive, FGFR2-rearranged cholangiocarcinoma
• 21% response rate in patients with treatment failure on a different FGFR inhibitor
• High disease control rate in patients with FGFR2 mutations
• Low rate of discontinuation due to adverse events, although the on-target side effects mimicked the unique side effects of other FGFR inhibitors (things like nail toxicity, rare retinal complications)

Their studies have also demonstrated activity in a broader range of FGFR2-altered solid tumors, for which there are currently no approved therapies, (save for erdafitinib in bladder cancer, although that’s for FGFR3 alterations). This points to another, possibly tissue-agnostic, approach for lirafugratinib.

Overall, it’s still early days for this drug, but it’s one of the first to have the researchers excited about the possibility to have an agent with activity in refractory patients, and possibly one that’s best in class for patients who have not had a prior FGFR inhibitor (Note that the registrational phase 2 trial for pemigatinib had a response rate of 35.1%).

RLY-2608

The next pipeline project of special focus for RLAY is designed to inhibit mutated PI3K-alpha, which is a gene commonly altered in different forms of cancer (particularly breast cancer). There is a PI3K-alpha inhibitor available for patients with breast cancer called alpelisib, but these agents as a class have been plagued by toxicity due to hitting other isoforms of PI3K in addition to wild-type PI3K-alpha.

RLY-2608 was designed to selectively hit the mutant form of PI3K-alpha, sparing all other forms of the drug and hopefully limiting toxicity. With toxicity being such a big question about this drug, I find the presentation of the phase 1 ReDiscover trial at AACR 2023 to be most interesting.

This study included 2 different cohorts of patients. In one, patients with any solid tumor harboring a PIK3CA (the gene encoding PI3K-alpha) mutation received RLY-2608 alone. In the other, patients with PIK3CA-mutated, hormone-positive breast cancer received RLY-2608 in combination with fulvestrant, a standard treatment option for patients with metastatic, hormone-positive breast cancer (although it’s worth noting that a lot of these patients would also get a CDK4/6 inhibitor now).

The study showed that RLY-2608 was getting into the plasma at concentrations shown to inhibit mutant PI3K-alpha. Importantly, no grade 3 hyperglycemia was observed to date in either cohort of patients. Most patients had some level of tumor shrinkage, although only one patient (who was in the breast cancer cohort) had an objective response. All patients in receiving RLY-2608 alone had disease progression and stopped therapy.

Since this was a phase 1 study, the initial safety readout is the most compelling part of the findings. No patients discontinued therapy due to classical adverse events associated with alpelisib treatment, and adverse events like hyperglycemia, rash, and diarrhea were infrequent (or nonexistent) and all low-grade.

The company has guided that they intend to begin a clinical study combining RLY-2608, fulvestrant, and a CDK4/6 inhibitor in the near future for HR+/HER2- metastatic breast cancer.

GDC-1971

One last molecule worth touching on is GDC-1971, one of a few SHP2 inhibitors in development for cancer. This agent has been outlicensed to Genentech, who assumed developmental responsibility for this agent.

Financial Overview

As of their latest quarterly filing, RLAY held $831.8 million in current assets, including $151.3 million in cash and equivalents and $659.3 million in investments. They recognized $25.2 million in licensing revenue, while having $98.8 million in operating expenses for the quarter. After interest income, the company recognized a net loss of $65.7 million for the quarter.

At that burn rate, RLAY has between 12 and 13 quarters of cash on hand, assuming that collaboration revenue and costs remain steady. They also recently closed the private placement sale of 2.5 million shares for gross proceeds of $30 million, further shoring up their coffers.

Strengths and Risks

Strength – RLAY has a real shot on goal for unmet needs

The two main pipeline projects in RLAY’s developmental stable tick a few interesting boxes for me. First, they both operate under established, known targets that have substantial evidence of successful exploitation. Second, the early data are about as convincing as you can regarding the potential benefits of these agents. RLY-2608 really does look less toxic than alpelisib. Lirafugratinib really does look active in FGFRi-refractory and in non-rearranged tumors.

These are all making for some very exciting shots, with possible far-ranging markets if they can bring the projects to fruition.

Risk – “Promising” clinical projects fail all the time

But this is a big “if.” It goes without saying that clinical programs don’t always succeed. Something like 95% of all drugs in cancer medicine that go through phase 1 fail to reach approval, and if you would indulge me giving you my gut feeling here (based on over a decade of watching these kinds of projects), targets like PI3K, FGFR2, and SHP2 are particularly prone to failure. They’re just that tough to build on the past work and make meaningful improvements.

Granted, RLAY’s approach is different from traditional drug design, and this has led them in very interesting directions. But “very interesting directions” carry the most risk of all, and I think it’s a worrying signal, for example, that RLY-2608 needed the fulvestrant backbone to have any sign of activity at all. The days are early there, and the tolerability looks great, but RLAY have yet to clearly demonstrate that they’re moving the needle in breast cancer. This agent could join the increasingly long list of paused and deprioritized therapies that RLAY has.

Bottom-Line Summary

RLAY is a bit awkward to make a solid decision on as a phase 1 entity. They’re still in very early days for their most important projects. My kneejerk is to say, “phase 1 companies shouldn’t be $1 billion in market cap” and call it a day. However, when you take into account that they’re holding almost that much in cash and liquid assets, the valuation starts to make sense, regardless of the potential promise of their clinical agents.

Therefore, on one hand, I’m inclined to feel they’re valued just about right, with significant upside if any of their projects shows signs of paying off. However, with a high cash burn rate, the assets are going to inevitably deteriorate, undermining the support that their cash on hand would grant. If they don’t show up with a significant clinical catalyst in 2024, then I think it’s very likely that they’ll fall from here. At the same time, I don’t see any particular reason why they should fall. Therefore, I’m going to hold off, wait and see. However, for the more intrepid among you, RLAY offers a high-reward, fairly high-risk opportunity.