Vaxcyte, Inc. (NASDAQ:PCVX) Q4 2023 Earnings Call Transcript

Vaxcyte, Inc. (NASDAQ:PCVX) Q4 2023 Earnings Call Transcript February 28, 2024

Vaxcyte, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to the Vaxcyte Fourth Quarter and Full-Year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] And just a reminder, today’s call is being recorded. Now at this time, I will turn things over to Mr. Andrew Guggenhime, President and Chief Financial Officer of Vaxcyte. Please go ahead, sir.

Andrew Guggenhime: Thank you, operator, and good afternoon, everyone. I’d like to welcome you to Vaxcyte’s earnings conference call to discuss our 2023 results and to provide a business update. I’m joined today by our Chief Executive Officer, Grant Pickering; and our Executive Vice President and Chief Operating Officer, Jim Wassil. Earlier this afternoon, we issued a news release announcing our results. Copies of this and our other news releases, latest corporate presentation and SEC filings can be found in the Investor & Media section of our website. Before we begin, I’d like to remind you that during this call we’ll be making certain forward-looking statements about Vaxcyte, which are subject to various risks, uncertainties, and other factors that could cause actual results to differ materially from those referred to in any forward-looking statements.

For a discussion of the risks and uncertainties associated with these statements, please see our press release issued today, as well as our most recent filings with the SEC, including the risk factors set forth in our Form 10-K for the year ended December 31, 2023, and any subsequent reports filed with the SEC. With that, I’ll turn the call over to Grant Pickering. Grant?

Grant Pickering: Thanks, Andrew, and all of you on the call and webcast, thank you for joining us today. 2023 was another remarkable year for Vaxcyte, officially marking our 10th year of thoughtful and methodical research and development by the entire Vaxcyte team and our partners. We are driven by our mission to prevent or treat infections caused by bacterial diseases, including invasive pneumococcal disease for IPD. This past year, we continued to make significant strides in advancing our potentially best-in-class pneumococcal conjugate vaccines for PCVs VAX-24 our lead 24-valent candidate, and VAX-31, our next-generation 31-valent candidate. And we remain focused on providing the broader spectrum of coverage against IPD for both adults and children.

Last year was highlighted by the successful completion of our VAX-24 adult Phase 2 program following our stellar initial proof-of-concept data in late 2022 in adults aged 50 and 64, we reported data in April 2023, from a separate Phase 2 study in adults 65 and older. It not only confirms the prior proof-of-concept study results, which showed even greater immune responses, compared to Prevnar 20, on a relative basis. These data further validate the potential of our cell-free platform and carrier-sparing approach to deliver broader spectrum PCVs. The findings from our adult Phase 2 program support a potential best-in-class profile for VAX-24 and demonstrate how our novel cell-free technology platform has the capability to overcome the limitations of other conventional approaches.

See also 11 Best Brewery and Distillery Stocks to Buy Now and 14 Best Software Stocks To Buy According To Hedge Funds.

Q&A Session

These results and the foundation we have carefully created have us well-positioned to advance our PCV franchise to potentially disrupt what has consistently done a crucial vaccine class, societally, and financially. Following the VAX-24 adult Phase 2 program completion, we made important progress with regulators. This included a successful end of Phase 2 meeting with the FDA regarding the clinical design of the VAX-24 Phase 3 program, as well as encouraging feedback on CMC-related matters as we plan for future potential BLA submissions. In addition to the positive developments for VAX-24, we were pleased to initiate the adult clinical program for VAX-31. With this important step, VAX-31 is now the broadest spectrum PCV in the clinic. Following the FDA’s acceptance of the adult IND, we initiated the Phase 1 portion of a Phase 1/2 study in adults 50 and older in November.

This strong momentum in this study continued into 2024 as we announced the start of the Phase 2 portion in early January and completion of enrollment less than a month later. I am incredibly proud of our many achievements, particularly across clinical, regulatory, and manufacturing for our PCV programs. And we now look ahead to several important milestones. For the adult indication, our VAX-24 program is Phase 3 ready. And we are in the final stages of manufacturing the product needed for several of the potential Phase 3 studies, including the pivotal non-inferiority study. In advance of the potential initiation of this VAX-24 study in the second half of this year, we expect to announce the topline safety, tolerability, and immunogenicity data from our VAX-31 adult Phase 1/2 study in the third quarter.

This timing and the overlapping timeline for the completion of the VAX-24 and VAX-31 adult Phase 3 studies provide us the opportunity to make a strategic decision regarding which adult program we now move into Phase 3, following the VAX-31 data readout. As we advance VAX-24, we intend to initiate the pivotal non-inferiority study in the second half of this year and the balance of the Phase 3 studies, which are shorter in duration than the non-inferiority study in 2025 and 2026. If we advance VAX-31, we expect to initiate the full complement of the Phase 3 studies in 2025 and 2026. Regardless of which program, we move forward we expect to initiate the final Phase 3 studies in 2026. And subject to the results of these studies, submit a BLA shortly following the completion of the last study.

VAX-24 remains a potential best-in-class candidate covering more serotypes in any pneumococcal vaccine on market or in U.S. clinics today. And VAX-31 has the potential to further increase coverage to approximately 95% of IPD circulating in the U.S. adult population. Beyond expanded disease protection, VAX-31 is designed to also maintain coverage of previously circulating strains that are currently contained via ongoing vaccination. This is critical since previously controlled strains have rebounded in prior instances where vaccine coverage was withdrawn. This puts us in a unique position relative to other sponsors for applying the conventional PCV approach and are forced to make sacrifices in an attempt to cover nearly circulating strains. We estimate that the adult pneumococcal vaccine market today is approximately $2 billion of the total $8 billion annual global market and is positioned to be the fastest-growing segment.

Growth in the U.S. market is expected to accelerate due to the potential shift in universal adult vaccination from age 55 down to 50, which would both expand the market and open up the adult regimen to a prime-boost schedule, nearing the infant market. Outside the U.S., we expect to see other countries begin to routinely recommend adult vaccination, as evidenced by the recent recommendation in Germany to vaccinate adults 60 and older. While the adult market is expected to grow significantly, the infant segment continues to represent the largest portion of the global pneumococcal vaccine market at an estimated $6 billion in the sales annually. We believe VAX-24 has a potential best-in-class profile for this vital population. And we are thrilled to be nearing the completion of enrollment of the second and final stage of our VAX-24 infant Phase 2 study.

Based on our progress, we expect the topline data from the primary immunization series by the end of the first quarter of 2025 with the topline booster data to follow by the end of that year. In contrast to the adult program, the VAX-24 infant clinical program is substantially ahead of the VAX-31 infant program. And we intend to advance both of our PCV candidates in this population. We expect to provide guidance on the potential timing for a VAX-31 infant IND, following the readout of the VAX-31 Phase 1/2 adult study later this year. Bringing the broadest PCVs to both infants and adults represents an opportunity to significantly reduce invasive disease across the entire population, is what drives our efforts every day. Given the magnitude of the opportunity of our PCV franchise, we continue to invest in further solidifying our manufacturing foundation to enable robust large-scale manufacturing.

These investments are intended to support the potential global commercialization of our PCVs for both the adult and the infant populations. Our expanded relationship with Lonza and our decision to exercise our option Sutro Biopharma, both of which we announced late last year are reflective of these efforts. In addition to our PCV franchise, we continue to advance our earlier-stage vaccine candidates including VAX-A1 to prevent Group A Strep, VAX-PG to treat periodontitis, and VAX-GI to prevent dysentery and shigellosis. VAX-A1 and VAX-GI, as well as our PCV programs targeting diseases that are significant contributors to antimicrobial resistance or AMR. AMR poses a serious global health threat, and if no action is taken, drug-resistant diseases are expected by the WHO to be a leading cause of death by 2050.

While AMR is a complex crisis that no single solution will fully address, vaccines represent an important part of the solution. We are proud to develop vaccines to help fight the diseases that have become increasingly resistant to treatment with antibiotics. And we look forward to sharing more updates on our earlier-stage pipeline over the course of the year. From a financial perspective, we substantially strengthened our balance sheet, raising approximately $545 million in net proceeds in a follow-on financing last April. And then added another $816 million earlier this month. Pro forma after this most recent financing, we had over $2 billion in cash and investments as of year-end. This financial strength provides us the capital to fund the company through several important milestones over the next few years, which Andrew will highlight later.

I’ll now turn it over to Jim who will provide more details on our PCV programs and strategy. Jim?

Jim Wassil: Thanks, Grant. I’d like to start by reiterating my developing broader coverage vaccines to treat pneumococcal disease matters. Despite the widespread administration of effective vaccines, the global impact of disease remains significant and is associated with high case-fatality rates, antibiotic resistance, and meningitis. In the U.S. alone, the standard of care pediatric and pneumococcal vaccines cover only approximately 30% to 50% of circulating diseases. As a result, the public health community continues to affirm the need for broader spectrum vaccines to prevent IPD. We designed our PCVs to expand coverage and still include all of the serotypes covered by the current marketing vaccine that were most prevalent when these vaccines were originally developed.

The ability to both add newly circulating strength and maintain pressure on previously circling strength is critical from a global health perspective. Based on the totality results from the VAX-24 adult Phase 2 program that Grant referred to earlier, we believe we have the opportunity to set a new bar for pneumococcal vaccines by delivering broader coverage and higher immune responses relative to conventional PCVs. Following the completion of the Phase 2 Adult Program, we had a successful end of Phase 2 meeting with the FDA, focused on the VAX-24 adult Phase 3 clinical program. We believe there is agreement with the FDA on the clinical design of this program, including the approximate overall number of subjects, the primary and secondary endpoints for the pivotal non-inferiority study, as well as confirmation that the planned immunogenicity analysis are sufficient to support licensure and an efficacy study is therefore not required.

Regardless of whether we advance VAX-24 or VAX-31, we expect either Phase 3 program to include up to five studies to support licensure and the broad label. Additionally, as part of the ongoing safety focus discussions, we received encouraging input from the FDA regarding the VAX-24 adult licensure requirements. We are afforded this dialogue under the VAX-24 adult Breakthrough Therapy designation and expect to seek additional CMC-focused input from the FDA as it continues to prepare for an adult Phase 3 program for either VAX-24 or VAX-31 and future BLA submissions. For VAX-31, we are thrilled to see that our Phase 1/2 adult study progressed from IND acceptance to enrollment completion in approximately three months. In total, the study enrolled 1,015 adults, aged 15 or older and is evaluating safety, tolerability, and immunogenicity at three doses.

Low, middle, and high compared to Prevnar 20, which I will refer to as PCV20. Similarly to the criteria for the VAX-24 adult Phase 2 program, the VAX-31 study will compare the opsonophagocytic activity or OPA and IgG responses compared to PCV20 for the 20 serotypes in common. And for the 11 serotypes you need for VAX-31, the study is evaluating the percentage subject to achieve a fourfold rise in OPV titers which is the established precedent and a basis for approval. Based on the preclinical data for VAX-31 and clinical data for VAX-24, particularly the mixed dose arm for both adult Phase 2 studies, we are optimistic about the prospects for the VAX-31 data. Recall that in the mix those aren’t from the VAX-24 study, we simulated the amount of carrier protein that is in the VAX-31 middle dose.

We believe those immunogenicity results give us a preview of what we might expect for VAX-31. If we see results for VAX-31 that are comparable to those from the mixed dose arms of the VAX-24 study, in which all the three serotypes hit the non-inferiority endpoint. We believe that would be a very positive amount. Going to our expectations for VAX-24 Phase 2 adult program, for the VAX-31 study upcoming readout focuses on the OPA geometric mean ratios for each serotype rather than the confidence intervals. Because this Phase 1/2 study will be smaller in size than the Phase 3 study, you can expect the confidence intervals to be wider. It’s very possible that several may cross the 0.5 non-inferiority threshold. Yes, the GMRs are 0.6 or higher for each serotype in the study.

Prior Phase 3 studies have shown that these ratios are adequate to achieve the non-inferiority threshold. When considering the historical presence for broader spectrum PCV candidates, our focus has been on the important societal benefits of extending disease protection, which is probably helpful in line for all prior PCV programs that have been approved. Regulatory authorities have accepted generally lower overall immune responses and some met non-inferiority endpoints versus the standard of care. We believe, however, based on our VAX-24 data that our carrier-sparing platform has the potential to change this historical pattern by both extending coverage and maintaining immune responses. With VAX-31, we expect to increase disease coverage by 45% influenced over the standard of care in adults today, which is significantly greater than the increase in recoveries presented by prior programs.

We believe this level of improvement will be strongly considered by regulators in their assessment of the potential public health benefit VAX-31 may provide. As our adult programs continue to advance, we are also pleased with the progress we’ve made with our VAX-24 program in infants. VAX-24 has a potential best-in-class profile in this population. And we are excited to be nearing enrollment completion for our infant Phase 2 study. Given the size and global nature of the infant market, we are particularly excited about the primary and booster data readouts expected in 2025. We believe these milestones along with the VAX-31 adult data readouts expected in the third quarter of this year will further define the full potential and magnitude of the PCV opportunity for Vaxcyte.

We look forward to sharing important updates on the progress of our PCV franchise this year. And I would now like to turn the call over to Andrew.

Andrew Guggenhime: Great. Thanks, Jim. On the financials, with respect to the income statement, the details of our fourth-quarter and full-year 2023 results and the reasons for the variances to the comparable 2022 periods are reflected in our 10-K filing and summarized in our press release. The year-over-year increase in R&D expenses was driven primarily by higher manufacturing expenses related to the planned adult Phase 3 clinical trials and potential future commercial launches of our PCV programs. Both R&D and G&A expenses also grew, as we invested in our team to support our recent and anticipated growth. The acquired manufacturing rights expense of $75 million for the fourth quarter and full year 2023 was related to the exercise of the option with Sutro Biopharma, of which $50 million was paid in cash in the fourth quarter.

The 2022 expense for the same item was related to the upfront consideration incurred in connection with the original option agreement entered into Sutro. I would also note the contribution of the interest income line as a function of our higher cash and investment balances and the higher interest rate environment. As we look forward, we expect an increase in 2024 R&D and G&A operating expenses over both full-year and Q4 2023 annualized levels, particularly within R&D. This expected increase is primarily a function of our investment to make the required clinical trial materials for a potential VAX-24 or VAX-31 Phase 3 Adult Program, which will consist of multiple trials, and to continue manufacturing activities to support the potential future commercial launches of our PCV programs.

While we expect substantial annual growth of our R&D expenses, we do expect the amount to vary by quarter depending on timing of manufacturing activities. For G&A, we expect the expense growth to be generally steady by quarter. At this time, we do not anticipate any future acquired manufacturing rates expenses. Separate from income statements in the fourth quarter of last year, we commenced construction and buildout of the dedicated manufacturing suite at Lonza to support the potential global commercialization of our PCV programs in connection with the agreement we entered into with them in October. We expect this buildout to take approximately 2 to 3.5 years at a capital cost over this period of approximately $300 million to $350 million. As of year-end 2023, we had incurred $86.5 million of capital and facility buildout expenditures that were reflected on our balance sheet in two separate line items, property and equipment, and other assets.

A detailed breakdown can be found in our 10-K filed today. For the remaining construction and buildout cost of this dedicated manufacturing suite, we expect the majority will be incurred in 2024 and the balance in 2025 and perhaps into early 2026. Most of the associated costs will be reflected on our balance sheet and the same July evidence I mentioned earlier and will not run through the income statements until buildout of the suite is complete and manufacturing activities commence. There will be a separate and smaller operating expense component over the buildout period that will be reflected within R&D expenses. Turning to the balance sheet and cash runway, as Grant noted, we continue to maintain a strong financial position ending in 2023 with $1.24 billion in cash, cash equivalents, and investments.

This excludes the $816.5 million in net proceeds from the follow-on month offering completed earlier this month. Going forward, we expect that our balance sheet will be sufficient to fund our operating expenses and capital expenditure requirements through a number of important milestones over the next few years, including the VAX-31 adult Phase 1/2 study top line data expected in the third quarter of this year. The VAX-24 infant Phase 2 study primary series and booster dose readouts expected by the end of the first quarter and year end 2025, respectively. The initiation of anticipated Phase 3 studies for the adults PCV program we elect to advance, which a VAX-24, would include the non-inferiority study in the second-half of this year and the remaining studies in 2025 and 2026 or if VAX-31, the full complement of studies in 2025 and in 2026.

The expected top line data from the Phase 3 pivotal non-inferiority study whether we advance VAX-24 or VAX-31, and the expected completion of the buildout of the dedicated manufacturing suite to support the long-term commercialization of our PCV programs. I will now turn it over to Grant for closing remarks.

Grant Pickering: Thanks, Andrew. Before moving to Q&A, I would like to acknowledge the entire team at Vaxcyte and our partners. 2023 was an extraordinary year of validation for VAX-24 and our pipeline. Over the next year we look forward to several upcoming catalysts that will further define the profiles of our PCV franchise and I am confident in our ability to execute and further scale our business in 2024 and beyond. We look forward to sharing further updates as the year progresses and I appreciate your interest by joining us today. With that, let’s take some questions. Operator?

Operator: Thank you very much, Mr. Pickering. [Operator Instructions] We’ll go first this afternoon to Jason Gerberry of Bank of America.

Jason Gerberry: Hi guys. Thanks for taking my questions. I guess, firstly, just as we think about this decision between VAX-31 and VAX-24, you’re ultimately measuring yourself against VAX-24. So wondering if you can kind of frame what success looks like? And in the end would showing kind of like a net incremental coverage of three or four strains as measured by statistical NI or good enough point estimates or a fourfold rise collectively across the spectrum. Does that sound like to kind of what a bar for success looks like? And then secondly, have you guys explored ways to reduce protein carrier in the 31-valent approach? And the reason I ask is, for some reason, if this iteration of VAX-31 doesn’t make the cut-off, just wondering if there are ways to potentially go back to the drawing board and to optimize. Thanks.