Relay Therapeutics shares price target cut, retains buy rating

On Wednesday, BofA Securities adjusted its stock price target for Relay Therapeutics (NASDAQ:RLAY) to $20.00, down from the previous $23.00, while maintaining a Buy rating on the stock. The firm anticipates Relay Therapeutics to release Phase 1/2 dose expansion data for its drug candidate RLY-2608, used in combination with fulvestrant for second-line and beyond breast cancer treatment, in the fourth quarter at a company event, with subsequent presentations at medical meetings.

The forthcoming data is expected to provide insights into the durability of the treatment effect, specifically progression-free survival (PFS), and the safety profile of RLY-2608 at the recommended Phase 2 dose with a larger patient sample size than the initial Phase 1. Relay Therapeutics' RLY-2608 is positioned against competitors like AstraZeneca (NASDAQ:AZN)'s capivasertib, which is becoming the standard care for PIK3CA-altered metastatic breast cancer due to better tolerability compared to alpelisib.

BofA Securities has set a benchmark for RLY-2608, suggesting that a median PFS of 7.5 to 8.5 months would indicate superior efficacy, potentially establishing it as a best-in-class option. This range compares favorably to the 5.5-month median PFS observed with capivasertib. However, if the median PFS is less than 7 months, it may prompt questions about RLY-2608's competitive edge over approved treatments.

The analysts are also monitoring the adverse event profile, particularly looking for less than 5% of patients to experience grade 3 or higher events in hyperglycemia, diarrhea, and rash. The optimism for RLY-2608's potential best-in-class PFS profile stems from observations in the SOLAR-1 trial, where patients on alpelisib had improved PFS outcomes when they maintained consistent treatment without dose modifications due to adverse events.

The revised price target reflects a more conservative sales forecast for RLY-2608, adjusting the expected duration of therapy based on data from similar drugs, such as capivasertib. Despite the lower price target, BofA Securities reaffirms its Buy rating on Relay Therapeutics, citing the fourth-quarter update as a significant opportunity to unlock value, especially given the market's current valuation of the company based on its cash position and the risk-adjusted contribution from its FGFR2 fusion solid tumors program.

In other recent news, Relay Therapeutics has experienced significant changes. The company's partnership with Roche, which had previously resulted in substantial payments of $121.8 million for the development of RLY-1971, was terminated without cause. H.C. Wainwright responded to this development by adjusting its price target for Relay Therapeutics from $20.00 to $18.00, maintaining a Buy rating on the company's stock.

In addition, the termination of the agreement with Genentech, a member of the Roche Group, has led to the cessation of further financial benefits or milestone payments for Relay Therapeutics. Analysts have reacted to these changes; Barclays upgraded the company's stock to Overweight due to an improved outlook, while Oppenheimer reduced its price target for the company to $25, but maintained an Outperform rating.

Furthermore, Relay Therapeutics has initiated three new drug development programs, earning a reiterated Buy rating from TD Cowen. The company's financial stability, with $750 million in cash, is expected to fund operations into the second half of 2026, allowing for the continuation and expansion of its research and development efforts. These are the latest developments for Relay Therapeutics.

InvestingPro Insights

BofA Securities' revised price target for Relay Therapeutics comes at a time when the company is navigating a challenging landscape, as reflected in the InvestingPro data and tips. With a market capitalization of approximately $865 million, Relay Therapeutics is positioned as a mid-sized biotech firm. The company's stock has exhibited significant volatility, with a 1-month price total return showing a decline of 15.2%, which aligns with the observation that the stock price movements are quite volatile (InvestingPro Tip #5).

Despite the high expectations for its drug candidate RLY-2608, the company is not profitable over the last twelve months, with a negative operating income margin of over 1000%. This financial metric is critical as it underscores the importance of upcoming clinical data in potentially altering the company's trajectory.

Relay Therapeutics holds more cash than debt on its balance sheet (InvestingPro Tip #0), which is a positive sign for its financial stability. However, it is also quickly burning through cash (InvestingPro Tip #1), a concern for investors considering the company's long-term sustainability.

Analyzing the fair value metrics, the InvestingPro Fair Value is estimated at $7.35, which is lower than the analyst target but higher than the current price, suggesting potential upside. Relay Therapeutics is expected to release its next earnings data at the end of October, which could provide further clarity on the company's financial health and the progress of its drug development programs.

For readers interested in a deeper dive into Relay Therapeutics' financial health and stock performance, InvestingPro offers additional insights and tips, with a total of 11 InvestingPro Tips available at: https://www.investing.com/pro/RLAY.

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