Vaxcyte, Inc. (PCVX) Earnings Call Transcript & Summary

All right, everybody. Thanks for joining us for our next company presenter at the Bank of America Annual Healthcare Conference in Las Vegas. My name is Jason Gerberry, I'm one of the biotech analyst at BofA, and I'm pleased to be introducing our next company presenter, Vaxcyte. We've got Grant Pickering, CEO; and we've got Jim Wassil, COO, with us on stage. Gentlemen, both, thanks for joining us.

Thank you for having us.

So maybe, I don't know, Grant, if you want to set the stage at all for Vaxcyte. Who you guys are as a company. Set the stage in terms of pneumococcal vaccination as a marketplace. I don't think that it needs a lot of context. It's a very large market at $7 billion global revenue, and forecasted to go, I think, upwards of like $8 billion to $10 billion in the future. So maybe if you can just sort of set the stage for you guys as a company and what you're up to.

Sure. Happy to set the stage on the stage. Yes. So we are a clinical-stage platform company. We're entirely focused on vaccines. We have a cell-free protein synthesis platform that allows us to do more precise conjugation. The leading segment of the vaccine space up until COVID was always the bacterial conjugate vaccine space, led by Prevnar, which used to be Pfizer's #1 product until the COVID products came along. So we have this technology that allows us to more precisely bring the components together that drive the protective immune responses that have underwritten Prevnar's success as a franchise. And the technology that we have allows us to develop broader spectrum forms of these vaccines in ways that we think we can deliver with our technology in ways that they can't keep up with. And so that's what's driving the focus of the company in this moment. We're in Phase II clinical development with our 24-valent vaccine. That's where most of the value that's been assigned to us has gone. But this is a real platform. We have some really interesting other bacterial conjugate vaccines coming behind the PCV franchise. We think we have a great opportunity ahead of us.

Got it. And as a smaller biotech company, you're going up against some big behemoths entrenched in the space. How do you win, right? Maybe just jumping to the chase in terms of the developing better vaccines? Is it ultimately no trade-offs on shared serotypes and really establishing a greater breadth of coverage where technologically, there's -- these behemoths, so to speak, are hamstrung in terms of how far they can push the bounds of vaccination coverage.

Yes. Yes. I mean, I started my career at Glaxo and J&J. Jim's was at Merck and Pfizer. So we know what it's like to be on the other side of these business opportunities. But for vaccines in this class, in particular, there's a very clear adoption dynamic, the broadest spectrum vaccine wins. That has been the history for vaccine, certainly, for pneumococcal conjugate vaccines. There was a GSK 10-valent vaccine that got approved. There was the 13-valent from Pfizer, and they ended up effectively with a monopoly position. That's happened again in other vaccine classes. You had Merck with a 4-valent HPV vaccine. You had GSK with a 2-valent. And although both vaccines were recommended, the 2 valent vaccine was ultimately withdrawn from the market altogether because 100% of the market went to the broader-spectrum vaccine. So there's a lot of history that demonstrates broadest wins and wins big, and we think we have that sort of opportunity here. And it's largely left to singular decision-making bodies that make the call. In the U.S., it's the ACIP. And with the right spectrum of coverage, we think we'd be in a position to get a preferred recommendation.

Mindfully, you probably don't want to talk about your competitors' products, but do you foresee broadest coverage winning, replaying out again with Pfizer's 20-valent versus the 15-valent competitor alternative. And based on sort of ACIP recommendations in adults recently, like, how do you see those dynamics kind of unfolding? Because it sets the tone and the picture for the market that you guys would be going into and the importance of even additional serotype coverage?

Yes, there's been a lot of action in the space in the last year. As you say, Merck got their 15-valent conjugate vaccine approved in adults. Pfizer got their 20-valent vaccine approved in adults. Merck was able to get a recommendation for their 15, but the 20-valent from Pfizer can be used alone, whereas the 15 valent for Merck needs to be used with this older class of vaccines that's broader spectrum, it has 23 strains, and you have to use those in sequence. And so they're definitely at a significant competitive disadvantage. So you have to give the nod to Pfizer. It's too early to say. They haven't put out any data yet, but I think everybody is betting on Pfizer to preserve their dominance in this space. And it's actually the exact driver that led us to our 24-valent vaccine, and you know this, Jason. But the 24-valent that we're developing entirely eclipses that old 23-valent vaccine that's still hanging around. And so with a vaccine that covers all those same strains, this will allow that old vaccine to be withdrawn altogether, and that will give us a chance to have a much more compelling argument relative to either of those products.

Okay. Maybe can you speak to the importance of limiting carrier protein suppression with your approach and the strength of the animal models that you use to leverage and ultimately kind of advance VAX-24 into the clinic?

Yes. I mean, this is the dilemma in this particular space. So I've talked about this old vaccine. It's called Pneumovax. This is a bacteria strep pneumonia, many of us are carrying it in the back of our throat right now, it's just the commensal bacteria. But when you get immunocompromised, it can create big problems for people. So that bacteria is characterized by having a very thick sugar coat on the exterior of the bacteria. It's what allows it to hang around in our body and not get cleared. And so the original class of vaccines was just taking those sugars and administering them and you can get a transient immune response to those -- that bacteria, but it doesn't last and it's not boostable. So what made Prevnar so valuable and so effective as you take the same sugar, but you attach a protein, in this case, a diphtheria toxin, and that toxin has T cell epitopes on it. And so you put those 2 things together and you actually convert the immune response to a T cell-dependent, boostable and durable immune response. So a vastly superior approach that prevents all sorts of maladies associated with this type of bacteria. But the negative consequence of that protein is it's the backbone for each of the conjugates. So when you hear Prevnar 13, there are 13 different conjugates mixed together, but all 13 of them have that same diphtheria toxin backbone. So when they go from 13 to 20, they're adding 7 more aliquots of the protein, that toxin. And so the more and more diphtheria toxin that's got introduced into the vaccine, the more the body reacts to that diphtheria toxin and starts to skew the immune response in that direction. What we can do is make our conjugates using half as much of that protein without losing immunogenicity. And that's what we believe will allow us to create -- we'll be able to create broader spectrum forms of these types of vaccines while still honoring the key mechanism of action but creating a franchise that leapfrogs over their technology. So that's the key issue they're facing, and that we're sidestepping.

Right. So going to, say, 20, you may see trade-offs on some of the old serotypes that there was coverage on by expanding that coverage, whereas the belief with 24 is that you don't have any trade-offs on shared serotypes and you're able to expand incrementally into those additional 4?

That's the ideal case. Yes.

And how did you choose the 4 additional serotypes that on the one hand, I think there's anywhere from 25 to 30 relevant serotypes ultimately. In dreamworld, I imagine VAX-XP will hit all of the relevant 25 or 30 at a future time point. So I guess, we look at invasive pneumococcal disease and event rates in different countries, and it's a bit complicated to probably quantify the importance of the 4, but just curious how you chose those 4 and why are they going to be important ultimately to bodies like the CDC when making the termination? [Audio Gap]

As you can see, the ACIP still has Pneumovax 23 being used in adults, even though there's a 15 and 20 available. The strategy that we're employing is that if we cover all the strains in Pneumovax and in the PCVs, then that can retire Pneumovax and allow you to give one dose and cover all those strains. But more importantly, what it allows you to do is it allows you now to boost because when you give Pneumovax 23, you have a phenomenon called hyporesponsiveness, meaning you try and give a boost, you don't get as robust the response. So the idea was, and you saw this at the ACIP in October, there's a lot of debate about moving the recommendation down to 50 years of age. But the reluctance was, well, if we give Pneumovax at 50, then when we try and give a boost at 65, we might not see that as robust of a boost. So our strategy was cover those strains that are in Pneumovax, retire Pneumovax, allow for a booster type response. And then the other thing is the incremental 4 serotypes are epidemiologically relevant, so to speak. Pfizer's 20-valent in the U.S. gives about an incremental 12% to 14% coverage over PCV15, while our 24-valent gives about the same incremental coverage as the 20 does over the 15. So we get another 12% or 14% coverage as well. So they are epidemiologically relevant in many areas as well. So they are important serotypes.

Yes.

Is there anything about the 2021 ACIP recommendation that helps validate the broader is better hypothesis? Or was it more just the practical constraints they put on the Merck vaccine?

I mean, if you look at it, you don't want to give a recommendation where you give one vaccine followed up by an additional vaccine. So you can see they went with the 20-valent alone or the 15 plus the 23. So they felt that the broader coverage of Pfizer's 20-valent was relevant enough that you didn't have to give a booster for the 23. But you can see they also didn't want to retire the 23 until all those trains are covered. So I do think that it is a good sign for us that once you do have all 24 strains covered in the PCVs and Pneumovax, that you could get a preferential recommendation, with Pneumovax being retired permanently.

Okay. Maybe the adult market, which is the lead program for you guys, how big do you think that could be, right? I mean, it was $800 million to $1 billion, I think, when Pfizer before the recommendation went from -- I think it was routine to direct -- physician discretion or something like that. But then you've got the potential for... [Audio Gap] As you think about different scenarios for you guys as a company, adult alone could be a pretty substantial opportunity, I would think.

Yes. No, I totally agree with that. Going back again to the ACIP and reading both the tea leaves actually what they did, they recommended a PCV for the first time to 18 to 65-year-olds who are at risk of pneumococcal disease. These are not just those with malignancies, with severe immunocompromised conditions. It's talking about diabetes, smoking, chronic lung, chronic liver, COPD. So you're talking between 15 and 64 -- about 30% of the U.S. adult population is considered at risk. So you've already significantly expanded the recommendation below 65. So I think that's number one. Number two, and you and I have talked about already, is there's a strong desire by more than a few ASIP members to move the recommendation down to 50. Well, if you do, you're going to need a booster at 65. So that could double the market. So that's number two. Number three is Pfizer just increased their PCV20 price by about 15%, 20%. So you'll see an expansion there. So that's the U.S. market. Overseas, what had happened previously was the infant dose was out for so long that herd immunity established up for about 4 to 5 years. And so there was a lot of reduction in disease in adults. And so they decided they weren't going to give an adult pneumococcal vaccine to -- as part of the routine recommendations. And now you're saying adults up first, there's probably not going to be a willingness to wait those 5 to 6 years for herd immunity. And a lot of discussions with COVID being out. COVID... [Audio Gap]

We've seen historically, that's sort of the opportunity set in front of you guys.

And so you got it right, Pfizer probably sells around $1 billion in adults. But Pneumovax for Merck sells about $1 billion on its own as well. So you've got a couple of billion dollars in this moment. But as you say, there are 2 or 3 key drivers that are going to substantially increase that market. It's probably looking to be at like 4, 5 eventually.

Okay. And maybe looking at your Phase II data when that's generated. Help frame for -- how would you frame for investors thinking through? There's a lot of permutations in this space in terms of shared serotypes. And do you hit the non-inferiority thresholds on all of them? Are there some that you have to hit on? And maybe you can have some trade-offs on some of them. And I think you've talked about being on the new strains, something like 40% above baseline levels on some of the antibody or functional antibody measures. So it's a lot to kind of navigate, I imagine, for someone who's newer to the space. And how do you think and frame through a favorable outcome?

Yes. Maybe just a little of the background, just to be clear what the hurdle is, we're talking about non-inferior immune response for kids. You don't have to run field efficacy studies for pneumococcal conjugate vaccines anymore. So imagine trying to run an RSV field efficacy study when everybody in the planet is wearing a mask, like the attack rates plummet. So to sidestep the need to run a field efficacy study is a huge risk ameliorator for a vaccine developer like us. So for us, we just need to show non-inferior functional antibody responses relative to Prevnar 20, and that's what we're looking to show in the Phase II clinical study that's going to read out later this year. The precise hurdle is you have to be greater than or equal to 50% of the mean titers that they show with Prevnar 20. And I know you're getting to some of the more fine nuances. The clean sweep is to show against those 20 common serotypes greater than that 50% threshold. If you look at our preclinical data, we've shown that relative to Prevnar 13, which has higher immunogenicity responses relative to Prevnar 20. So it gives us a lot of confidence that we're tracking, heading into this experiment. But if we don't hit non-inferiority on all 20 of those comparisons, what happens? So there's actually a lot of precedent there. So when Pfizer developed Prevnar 13 compared to the first-gen version of Prevnar, which had 7, this was in kids. They failed to meet that non-inferiority standard on 3 of the common 7 serotypes. The FDA still gave them a full approval because they were adding 6 more new ones and the risk associated with some loss of fidelity on those earlier 3 was enough of a trade-off that they approved the 13-valent vaccine. So there's definitely precedent that you can miss on a few. So of course, we want to hit on all of them. Our data preclinically, it looks like we're tracking for that. But if we were to miss on a couple, the 2 that would be under the most scrutiny would be serotypes 3 and 19A, and that's because there's still circulating disease even though those strains are included in the vaccine. So there's anxiety about it. But even if you're a little bit better, I'm not so sure you'll get a lot of credit because those strains are more recalcitrant. So those are 2 that everybody will look at. So -- but if you're even, like, in the same zone, that's probably enough. But obviously, we'd like to have no explaining to do. But certainly, there's precedent that if you're lower on a few, you can still get by. And you can also manage in Phase III with sample size to drive the powering. So I think we have a number of degrees of freedom.

And you talked about having, like, roughly half the protein carrier as was that PCV13 -- or is that PCV20. Just help us think through how much protein carrier your Phase II formulation has relative to the competitor set?

Yes. So it's 2 dimensions. It's ratio and then there's a cumulative amount of the protein across your full vaccine. So when they make a conventional pneumococcal conjugate, and Pfizer and Merck use the same approach, they end up with about 20% more protein than sugar. So 20% more of the diphtheria toxin than the sugar when they make a single conjugate. And keep in mind, they make 13 of them or 15 of them or 20 of them. So they've got more protein every time they make a conjugate. And then when they add it all up, obviously, that ends up with a cumulative amount. When we make our conjugates, we have about half as much protein. So we've got less protein than sugar, but it still forms the right sort of structure. And so we have about the same amount of diphtheria toxin in our 24-valent vaccine as Pfizer had in their 13-valent vaccine. So naturally, we'll have even substantially less relative to Prevnar 20.

Got it. Okay. So the hope is to have data by end of year? And can you talk about -- you've just started enrollment. So there's probably not a huge substantive update. But how are you guys thinking about enrollment? Right now, we hear a lot of companies talking about challenges, conducting studies and enrollment so -- or conversely, in an infectious disease area, maybe things might move at a brisk pace. What are your kind of operating assumptions for pace of enrollment?

Yes. So before I got into vaccines, I was doing oncology and everybody knows that's like hand-to-hand combat, right? You're trying to get, like, a-half of patient per site per month, and you're living and dying based on that enrollment rate. Vaccine studies are the complete opposite. So just imagine, you're enrolling normal, healthy adults, aged 50 to 64 for whom that entire swath of the population is not routinely vaccinated with the pneumococcal conjugate vaccine, which would be the big exclusion criterion. So you miss that risk with this study. And so we've got 13 sites that are enrolling. Jim's leading all that effort. So kind of stealing his thunder here, but we enrolled 64 subjects in the Phase I study in a few weeks. So these go very rapidly. So it's not done until it's done, but it's not that same sort of enrollment dynamic that will be a part of our story. Like soon enough, it will be enrolled and we'll have the data before the end of the year.

Yes. And the plan would be to have both the healthies and the Phase II portion updated for the investment community together? Or would you update on the healthies and those findings in advance of that?

Yes. I mean, they're all normal healthy adults. The Phase I was in 18 to 49...

Well, I guess, I meant -- yes, the Phase III.

Just the age groups.

So do you want to take that?

So the plan for our top line results. Right now for our initial study, it's in 64 subjects, it's safety in the 18- to 49-year-olds. We did some intensive safety monitoring for the first month after the vaccine, and then we do a 6-month safety follow-up. So during the top line results, we should have the safety from this initial Phase I. And then in addition, the top line, we'll have the initial safety and tolerability from the Phase II as well as top line immunogenicity results.

Okay. Yes, I'm programmed to think safety, healthy volunteer, even though in this context is probably not the right way to think about it. Okay. And in terms of this moving target, right? Like the additional strains or serotypes that don't have coverage currently. How to think about, like, in a key market like the U.S., the amount of invasive pneumococcal disease that's being contributed. Can you quantify that? Just trying to think through how regulators, CDC might think about the importance of broader coverage. Mindful that we have the sort of general notion, broadest wins all. But I know that there's a scenario where Astellas with they're 24-valent comes to the market, and we've got 2 different competitive offerings and just trying to think through that dynamic.

You should take that. Jim's our resident epidemiology expert. But I know the company you're referring to, but Astellas is out. They quit the game. So they returned the rights of that vaccine to Affinivax. So Astellas pulled the plug. So it's important to note.

So from an epidemiological perspective. I mentioned that between the 20 and 24, there's about a 12%, 13% incremental coverage. Well, when you look at it, in the U.S., there's about 1 million cases of pneumococcal pneumonia every year. And so to put that in perspective, if you say, okay, assuming 100% efficacy, about 100 to 120, 150 -- so say, even 70% efficacy, we'll do a nice round number, that's 100,000 cases of pneumococcal pneumonia that could be prevented. There's a 6% in-hospital death rate with pneumococcal pneumonia. So that would be 6,000 deaths averted, 13% within 1 month. And within 1 year, it's a 30% death rate after somebody who has a pneumococcal pneumonia. So if you start to do those numbers, that incremental difference just from pneumococcal pneumonia is huge. But then you have invasive disease, which is more rare, but the death rates are in the 25% to 30% rate as well as some other sequelae that you can prevent. So that incremental 10% to 12% does translate into some really, really beneficial incremental gains in terms of morbidity and mortality prevented.

Yes. Okay. Now relative to maybe some more mature vaccine categories where the margins might be lower. The margins, I imagine here, are higher than perhaps other vaccine categories, at least from perhaps what a Pfizer might capture on its Prevnar product offering. Just trying to think through the margin structure here. And ultimately, you have a different manufacturing approach, so to the extent to which a large pharma that's built up manufacturing to make vaccines in a certain way, how they might be attracted to an approach like yours if derisked further from a clinical perspective?

Yes. I mean, this has been the most attractive vaccine segment, largely because of the premium pricing to your point. So Pfizer sells Prevnar for about $230 a dose. You can back out the cost of goods just looking at what they sell it to Gavi for developing nation use, and it comes out in the high single-digit cost per dose. So you're talking about as good as you can get kind of margins in this industry. So for us, we're largely mimicking the steps associated with making these vaccines. Every time you make more, obviously, the costs go up a little bit. But every time a broader spectrum version has come out, they charge more for it. So you more than make up the difference. But as we think in the long run, we don't see a reason why our cost of goods should be more than theirs as we get to the sort of volume that we think we can ultimately hit. So we think we've got a fantastic opportunity to help mankind in terms of the sort of epidemiology that Jim just referenced. But certainly from a business opportunity, it's a really terrific space for which with the right spectrum of coverage, you can really create a dominant business.

Okay. And VAX-XP. The thinking behind the sequencing of 24 versus XP. Is XP technologically more complicated with your chemistry approach. Just it seems, "Hey, why not just add a few more." But conversely, maybe it takes more time, it would have slowed you down. And so maybe the thought process of sort of having XP in the wings?

Yes. It's really a phenomenal life cycle management opportunity. So VAX-XP is a 30-plus-valent pneumococcal conjugate vaccine. VAX-24, as you've heard, is a 24-valent. But we did all the foundational work with VAX-XP to facilitate an easier road for VAX-XP. So all 24 of the conjugates that are in VAX-24 are also in VAX-XP. So we're just making an additional half dozen-or-so more and intermingling them into a drug product formulation. So it's definitely on the heels of VAX-24, and that's been very intentional. We thought from the very beginning, we ought to showcase the ability to create broader spectrum vaccines that pharma can keep up with. And we've stuck to that. And you get the benefit of making those original components and using them in the next version. So it's really within striking distance of VAX-24. So it's coming soon.

Okay. And then pediatric in terms of the timing of the IND and moving forward with feeds into the clinic, any update there in terms of timing?

Yes, we're going to have a cascade. So first things first, we'll get the Phase II data in the 50- to 64-year olds. That data will populate the IND that would go in for the pediatric indication. We've guided to moving ahead with pediatrics once we get that Phase II data later this year. So we'd be looking at an IND in the pediatric space sometime in 2023.

Okay. So a lot going on, probably only have like 40 seconds-or-so left. Maybe VAX-A1 and some of the other vaccine programs that you're working on. Could we be potentially at sort of the IND approval stage in 2023 for either of these?

We'd like to be. We're going to guide to timing of that VAX-A1 IND later this year. This is another bacterial conjugate vaccine. There is no vaccine for Group A Strep. It's a huge problem. There are 1 million cases of this a year. So a really exciting opportunity. There's not much competition. We're leveraging the same technology and same expertise we've developed to go after this whitespace target. We've been in IND-enabling activities. We're just locking down the contract manufacturers. And once we have that down, we'll be able to guide more specifically toward an IND.

Okay. Great. Well, we're out of time, but I appreciate the time and the insights and the work you guys are doing.

Yes. Thank you, Jason.

Yes. Thank you.