On Tuesday, Oppenheimer adjusted its stance on Relay Therapeutics (NASDAQ:RLAY) stock, shifting the rating from Outperform to Perform.
The change follows the biotechnology company's recent update on its ReDiscover trial outcomes, which were disclosed on Monday, September 9, 2024. Relay Therapeutics experienced a significant stock price surge, with a 50% increase intraday on Monday, outpacing the 2% rise in the XBI biotech index.
The analyst from Oppenheimer expressed a tempered reaction to the clinical benefit rate of 57% reported from the trial, which was only marginally above their internal expectation of 50%. The results were from a study involving heavily pre-treated patients, which, according to the analyst, complicates direct comparisons with other trials.
Despite these challenges, the analyst's response suggests a degree of disappointment, hinting that the efficacy of RLY-2608, Relay's investigational drug, might not be as robust as competitors due to its selectivity profile.
RLY-2608 has been noted for its approximately 8-fold selectivity for mutant PI3K. However, the analyst indicated that this level of selectivity might not be sufficient. The concerns are that while Relay Therapeutics aims to mitigate the risk of hyperglycemia, a known side effect, this could come at the cost of reduced efficacy. The analyst pointed out that this leaves room for competing firms with more selective drugs to potentially outperform Relay in the market.
Competitors mentioned by the analyst include Scorpion and OnKure, both of which are developing their own selective drugs. Notably, Scorpion is expected to present data at the upcoming European Society for Medical Oncology (ESMO) conference.
The results from Relay's ReDiscover trial and the subsequent rating downgrade highlight the competitive landscape in which the company operates and the high stakes involved in drug development for heavily pre-treated patient populations.
In other recent news, Relay Therapeutics has made substantial progress in its drug development efforts. Goldman Sachs (NYSE:GS) reinstated coverage on the company with a Buy rating and a price target of $20. This followed positive Phase 2 data for RLY-2608, a treatment for PI3Kα-mutated HR+/HER2- breast cancer.
The company intends to initiate a Phase 3 study in 2025. Furthermore, Relay Therapeutics has initiated a $200 million underwritten public offering of its common stock, with Goldman Sachs & Co. LLC, TD (TSX:TD) Cowen, Stifel, and BofA Securities serving as joint book-running managers.
Following the termination of its collaboration with Roche, several firms adjusted price targets. Barclays (LON:BARC) maintained an Overweight rating and raised the stock's price target to $17.00, BofA Securities revised its price target to $20.00 and maintained a Buy rating, while H.C. Wainwright reduced its price target to $18.00 but also maintained a Buy rating.
As of the second quarter of 2024, Relay Therapeutics reported a cash position of approximately $688 million, expected to fund operations into 2026. The company plans to initiate a monotherapy solid tumor dose expansion cohort by the end of 2024, and a vascular malformations study in 2025. These are the recent developments in the company.
InvestingPro Insights
Relay Therapeutics (NASDAQ:RLAY) has been garnering attention with a significant stock price surge following the ReDiscover trial outcomes. InvestingPro data indicates a remarkable 3637.58% revenue growth in the last twelve months as of Q2 2024, signaling a rapid expansion despite the company not being profitable during this period. The market has reacted positively to Relay's short-term prospects, with a strong return of 46.99% over the last week and 41.94% over the last month. These metrics underscore the market's current optimism about the company's growth trajectory.
An InvestingPro Tip points out that Relay holds more cash than debt on its balance sheet, which provides a degree of financial stability and flexibility. However, another tip raises concerns as the company is quickly burning through cash, which is a critical factor for investors to consider, especially in the capital-intensive biotech industry. With analysts not anticipating profitability this year and expecting a sales decline, the financial health of Relay will be an area to watch closely.
For investors looking to dive deeper into Relay Therapeutics' financials and future outlook, additional InvestingPro Tips are available. In fact, there are 11 more tips on Relay Therapeutics that could provide a more nuanced view of the company's performance and potential, which can be found on the InvestingPro platform.
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