Breaking Down Relay Therapeutics, Inc. (RLAY) Financial Health: Key Insights for Investors

Understanding Relay Therapeutics, Inc. (RLAY) Revenue Streams

Understanding Relay Therapeutics, Inc.’s Revenue Streams

The revenue recognized by the company for the nine months ended September 30, 2024, was $10.0 million compared to $25.5 million for the same period in 2023. This represents a decrease of $15.5 million, primarily attributed to the recognition of $25.0 million in variable consideration under the Genentech Agreement in the prior year, which was not repeated in 2024.

For the three months ended September 30, 2024, no revenue was recognized, contrasting with $25.2 million in the same quarter of 2023. This significant decline is due to the completion of research and development services under the Genentech Agreement in 2023.

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate for the nine months ended September 30, 2024, reflects a decrease of approximately 60.7% when comparing to the nine months ended September 30, 2023.

Contribution of Different Business Segments to Overall Revenue

All revenue recognized during the periods under review was derived from the Genentech Agreement. The specifics are as follows:

Analysis of Significant Changes in Revenue Streams

The termination of the Genentech Agreement, effective 180 days post-notice received on July 11, 2024, will impact future revenue streams significantly. The company will not receive further milestone or other payments after the termination date, resulting in a halt to anticipated revenue from this source.

The following table summarizes the revenue recognized over the relevant periods:

As of September 30, 2024, the accumulated deficit stood at $1.7 billion, reflecting the ongoing challenges in achieving profitability while relying heavily on collaborative agreements for revenue generation.

A Deep Dive into Relay Therapeutics, Inc. (RLAY) Profitability

A Deep Dive into Relay Therapeutics, Inc.'s Profitability

Gross Profit Margin: For the nine months ended September 30, 2024, the total revenue was $10.0 million, compared to $25.5 million for the same period in 2023. The gross profit margin is calculated as follows:

The decline in revenue reflects a significant drop due to the recognition of variable consideration under the Genentech Agreement in the prior year. The gross profit margin remains at 0% as there were no product revenues, indicating a reliance on research collaborations rather than direct sales.

Operating Profit Margin

The operating loss for the nine months ended September 30, 2024, was $287.5 million, compared to an operating loss of $280.8 million for the same period in 2023. The operating profit margin is calculated as follows:

The increase in operating loss indicates higher operating expenses, despite a slight decrease in research and development costs. This reflects ongoing investment in clinical trials and other development activities.

Net Profit Margin

The net loss for the nine months ended September 30, 2024, was $261.7 million, compared to a net loss of $258.5 million for the same period in 2023, leading to the following net profit margins:

Trends in Profitability Over Time

Over the past nine months, the company has seen a consistent trend of increasing net losses, indicating challenges in achieving profitability. The following table summarizes the net losses over the last two years:

This trend highlights the ongoing financial strain as the company invests heavily in research and development without generating significant revenue.

Comparison of Profitability Ratios with Industry Averages

As of September 2024, the average net profit margin in the biotechnology industry is approximately -20%. Relay Therapeutics, Inc. significantly underperforms this benchmark, with a net profit margin of -2617.04%.

Analysis of Operational Efficiency

The operational efficiency can be assessed through the company's cost management strategies. The following table outlines key operating expenses for the nine months ended September 30, 2024, compared to the previous year:

The slight decrease in total operating expenses is notable; however, the overall loss from operations remains substantial, indicating that while the company may be managing costs effectively, the scale of investment in development outweighs its current revenue generation capabilities.

Debt vs. Equity: How Relay Therapeutics, Inc. (RLAY) Finances Its Growth

Debt vs. Equity: How Relay Therapeutics Finances Its Growth

As of September 30, 2024, the company's total liabilities amounted to $91.3 million while total stockholders' equity stood at $838.9 million. This indicates a significant reliance on equity financing compared to debt.

Overview of the Company's Debt Levels

The company's current liabilities include accounts payable of $6.9 million, accrued expenses of $33.2 million, and other current liabilities totaling $1.4 million. There are no long-term debts reported, as the company has not utilized significant debt financing, which is typical for biotech firms focused on research and development.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio can be calculated as follows:

• Debt-to-Equity Ratio = Total Liabilities / Total Stockholders' Equity
• Debt-to-Equity Ratio = $91.3 million / $838.9 million = 0.109

This ratio of 0.109 is significantly lower than the industry average for biotech companies, which typically ranges from 0.4 to 1.0. This indicates a conservative approach to leveraging debt for growth.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

As of the latest reports, the company has not engaged in any recent debt issuances nor has it been rated by major credit rating agencies. Instead, it has focused on equity financing, including a recent follow-on offering that raised $218.2 million in September 2024.

How the Company Balances Between Debt Financing and Equity Funding

The company has historically financed its operations primarily through equity, reflecting a strategy to maintain a strong balance sheet. For instance, it raised $29.8 million from a private placement in January 2024. The approach minimizes financial risk and allows for greater flexibility in funding research and development activities without the burden of debt repayment.

This table summarizes the company's recent financing activities, highlighting its focus on equity over debt, which aligns with its growth strategy in the competitive biotech landscape.

Assessing Relay Therapeutics, Inc. (RLAY) Liquidity

Assessing Relay Therapeutics, Inc.'s Liquidity

Current Ratio: As of September 30, 2024, the current ratio is calculated by dividing current assets by current liabilities. The company had cash, cash equivalents, and investments of $839.6 million.

Quick Ratio: The quick ratio, which excludes inventory from current assets, is also favorable given the high liquid assets relative to current liabilities. As specific current liabilities were not detailed in the available data, the quick ratio remains to be calculated based on future disclosures.

Working Capital Trends

As of September 30, 2024, the company reported total stockholders' equity of $838.9 million and an accumulated deficit of $1.66 billion. The working capital trends indicate a need for careful monitoring as operational losses continue.

Cash Flow Statements Overview

The cash flow statement for the nine months ended September 30, 2024, reveals:

• Operating Activities: Cash used was $191.2 million, primarily due to a net loss of $261.7 million, offset by $57.3 million in non-cash charges.
• Investing Activities: Net cash used was $70.1 million, mainly from investments.
• Financing Activities: Cash provided was $269.4 million, stemming from private placements and common stock offerings.

Potential Liquidity Concerns or Strengths

The company holds substantial liquidity with $839.6 million in cash and equivalents. However, the ongoing operating losses, with a net loss of $261.7 million for the nine months ended September 30, 2024, indicate that while liquidity appears strong currently, the sustainability of operations without additional funding is a concern.

Moreover, the termination of the Genentech Agreement may impact future cash inflows, highlighting the need for strategic financial management to address potential funding gaps.

Is Relay Therapeutics, Inc. (RLAY) Overvalued or Undervalued?

Valuation Analysis

As of September 30, 2024, the company reported a net loss of $261.7 million compared to a net loss of $258.5 million for the same period in 2023. The accumulated deficit reached $1.7 billion.

Price-to-Earnings (P/E) Ratio

As of the latest financial data, the company does not have a positive earnings figure, thus rendering the P/E ratio not applicable. The net loss per share for the nine months ended September 30, 2024, was $1.94.

Price-to-Book (P/B) Ratio

The book value per share as of September 30, 2024, was calculated as follows:

• Total stockholders’ equity: $838.9 million
• Shares outstanding: 166.9 million
• Book value per share: $5.03 (calculated as $838.9 million / 166.9 million)

The stock price as of September 30, 2024, was approximately $7.00, leading to a P/B ratio of 1.39 (calculated as $7.00 / $5.03).

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The company reported operating expenses of $297.5 million for the nine months ended September 30, 2024. Given the adjusted EBITDA is negative due to the net loss, the EV/EBITDA ratio is not meaningful at this time.

Stock Price Trends

The stock price over the last 12 months showed significant fluctuation:

• 12 months ago: approximately $9.50
• Current price: approximately $7.00
• Percentage decrease: 26.3%

This decline reflects the financial challenges faced by the company, particularly in revenue generation.

Dividend Yield and Payout Ratios

As of September 30, 2024, the company has not declared any dividends, resulting in a dividend yield of 0%.

Analyst Consensus

Analyst consensus on the stock as of October 2024 is as follows:

• Buy: 5 analysts
• Hold: 2 analysts
• Sell: 1 analyst

The majority of analysts maintain a positive outlook, citing potential breakthroughs in clinical trials as a key driver for future value.

Key Risks Facing Relay Therapeutics, Inc. (RLAY)

Key Risks Facing Relay Therapeutics, Inc. (RLAY)

Overview of Internal and External Risks:

Relay Therapeutics is exposed to several internal and external risks that may impact its financial health. Industry competition remains a significant concern, especially given the competitive landscape of biopharmaceuticals. The company has not yet commercialized any products and does not expect to generate revenue from product sales for several years, if at all. As of September 30, 2024, the accumulated deficit stood at $1.7 billion.

Additionally, regulatory changes could impact the development timelines and costs associated with clinical trials. The termination of the collaboration agreement with Genentech, effective July 11, 2024, raises concerns about future revenue streams and the ability to fund ongoing research and development.

Operational, Financial, and Strategic Risks:

In recent earnings reports, Relay Therapeutics highlighted several operational and financial risks. For the nine months ended September 30, 2024, the company incurred a net loss of $261.7 million, compared to $258.5 million for the same period in 2023. Research and development expenses totaled $251.0 million for the nine months ended September 30, 2024. The company anticipates continued significant operating losses for the foreseeable future as it invests heavily in clinical trials and product development.

Furthermore, the company reported a cash position of $839.6 million as of September 30, 2024, which is expected to fund operations into the second half of 2027. However, ongoing fundraising efforts may divert management's focus from day-to-day operations, potentially affecting the development of product candidates.

Mitigation Strategies:

Relay Therapeutics has implemented several strategies to mitigate risks. The company plans to pursue additional financing through public or private equity and collaborations with third parties. The recent completion of a public offering in September 2024 raised $218.2 million. Additionally, the company is actively seeking to establish new partnerships to enhance its development pipeline and mitigate the financial impact of the Genentech agreement termination.

Future Growth Prospects for Relay Therapeutics, Inc. (RLAY)

Future Growth Prospects for Relay Therapeutics, Inc. (RLAY)

Analysis of Key Growth Drivers

Relay Therapeutics has several key growth drivers that may enhance its future performance:

• Product Innovations: The company is focused on precision medicine, particularly in oncology and genetic diseases, which could lead to significant breakthroughs in treatment options.
• Market Expansions: Exploring new markets and therapeutic areas can increase its addressable market size.
• Acquisitions: The acquisition of ZebiAI Therapeutics, Inc. is a strategic move that may enhance its capabilities in drug development and expand its pipeline.

Future Revenue Growth Projections and Earnings Estimates

As of the nine months ended September 30, 2024, the company recognized revenue of $10.0 million, a decrease from $25.5 million for the same period in 2023. This decline was primarily due to the recognition of $25.0 million in variable consideration under a previous agreement with Genentech, which was constrained in the prior year.

Analysts project a gradual increase in revenue as the company advances its clinical trials and potentially commercializes its product candidates. However, significant operating losses of $261.7 million for the nine months ended September 30, 2024, indicate that profitability may not be achieved in the near term.

Strategic Initiatives or Partnerships That May Drive Future Growth

Strategic partnerships will be crucial for Relay Therapeutics. The termination of the Genentech Agreement on July 11, 2024, may impact future revenue streams, highlighting the need for new collaborations to replace lost revenue.

In addition, the successful completion of clinical trials and subsequent FDA approvals of its product candidates will be vital for generating revenue. The company has filed a universal shelf registration statement to facilitate future capital raises, which could support ongoing development efforts.

Competitive Advantages That Position the Company for Growth

Relay Therapeutics possesses several competitive advantages:

• Innovative Technology Platform: The company's proprietary platform for drug discovery focuses on protein motion and its impact on drug design, potentially leading to more effective treatments.
• Strong Financial Position: As of September 30, 2024, the company reported cash, cash equivalents, and investments totaling $839.6 million, which is projected to support operations into the second half of 2027.
• Experienced Management Team: The leadership team has a proven track record in drug development and commercialization, which can enhance strategic decision-making.

Financial Data Summary

Relay Therapeutics is positioned for potential growth through its innovative pipeline, strategic partnerships, and a strong financial foundation. However, the challenges posed by recent contract terminations and ongoing operational losses will need to be addressed to achieve long-term success.

Updated on 16 Nov 2024

Resources:

1. Relay Therapeutics, Inc. (RLAY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Relay Therapeutics, Inc. (RLAY)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Relay Therapeutics, Inc. (RLAY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.