On Monday, Goldman Sachs reinstated coverage on Relay Therapeutics (NASDAQ:RLAY) with a Buy rating and a price target of $20.00. The firm's decision follows the positive Phase 2 data for RLY-2608 in combination with fulvestrant for the treatment of PI3Kα-mutated HR+/HER2- breast cancer. Relay Therapeutics plans to initiate a Phase 3 study in 2025.
The analyst highlighted RLY-2608's 9.2-month progression-free survival (PFS) as surpassing the 5.5-month benchmark set by AstraZeneca (NASDAQ:AZN)'s capivasertib and other non-selective PI3K inhibitors. The safety and tolerability profile of RLY-2608 was also noted as favorable.
Despite a significant stock price increase of approximately 52% following the data release, Goldman Sachs views the company as undervalued, considering the commercial potential of RLY-2608, which is projected to reach peak sales of $2.0 billion by 2035.
Goldman Sachs expressed optimism about the drug's translatability to a planned second-line Phase 3 study and its potential for frontline expansion. The analyst sees RLY-2608's selectivity and tolerability as key differentiators, particularly in combination with CDK4/6 inhibitors or a selective CDK4 inhibitor, through Relay Therapeutics' partnership with Pfizer (NYSE:PFE). Safety data for these combinations is expected in the fourth quarter.
In addition to the developments surrounding RLY-2608, Relay Therapeutics aims to partner its selective FGFR2 inhibitor lirafugratinib, with a tumor-agnostic update anticipated in October. Goldman Sachs also sees potential value in Relay's preclinical programs for vascular malformations, Fabry disease, and NRAS-driven solid tumors, which are not yet factored into their financial model.
In other recent news, Relay Therapeutics has initiated a $200 million underwritten public offering of its common stock, with Goldman Sachs & Co. LLC, TD Cowen, Stifel, and BofA Securities serving as joint book-running managers. The company also reported encouraging interim data for its breast cancer treatment, RLY-2608, which demonstrated a median progression-free survival of 9.2 months. Analysts from TD Cowen reiterated a Buy rating for the company following the positive trial data.
However, Relay Therapeutics announced the termination of its collaboration with Roche, leading to adjustments in price targets by different firms. Barclays 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.
InvestingPro Insights
As investors digest the positive news from Relay Therapeutics (NASDAQ:RLAY) and Goldman Sachs' optimistic reinstatement of coverage, it's valuable to consider some key financial metrics and expert insights. According to InvestingPro data, Relay Therapeutics holds a market capitalization of $1.29 billion, with a striking revenue growth of 3637.58% in the last twelve months as of Q2 2024. Despite this growth, the company faces challenges, as evidenced by its negative gross profit margin of -836.59% and an operating income margin of -1060.46% for the same period. The company's stock has experienced volatility, with a 1-week price total return of -8.1%.
Two InvestingPro Tips shed light on the company's financial health and market expectations. Firstly, Relay Therapeutics holds more cash than debt on its balance sheet, which could provide some financial stability. However, analysts have revised their earnings downwards for the upcoming period, indicating concerns about the company's future profitability. With 8 additional tips available on InvestingPro, investors have access to a comprehensive analysis to guide their investment decisions.
As the market anticipates Relay Therapeutics' next earnings date on October 31, 2024, the InvestingPro Fair Value estimate stands at $7.11, contrasting with the analyst target of $22. These figures suggest that while the company's drug development prospects are promising, the financials paint a more complex picture that investors should consider.
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