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

All right. So good morning, everybody. For those of you who don't know me, my name is Dave Risinger, and I cover diversified biopharmaceuticals. It's very much my pleasure to welcome members of the Vaxcyte leadership team for the session today. And I have the pleasure of being joined by CEO and Co-Founder, Graham Pickering; and President and CFO, Andrew Guggenhime.

The companies had tremendous momentum and progress in terms of executing on its vision and actually Grant, maybe that's how we should start. If you could talk about your vision for the company, and then we can go from there?

Well, David, thank you for having us down to sunny Miami. We really appreciate the invitation. Delighted to be here. Nice to see you all this morning. Yes, the Vaxcyte vision, frankly, hasn't wavered over the last decade since we started the company. We've become known for our broader spectrum, carrier-sparing, pneumococcal conjugate vaccines. This is an existing category of vaccines that's been incredibly important and has created a great business for the most part for Pfizer. This is a category where we spend $8 billion a year on pneumonia vaccines. And unfortunately -- they're so effective that they take the circulating strains largely out of circulation requiring you to add additional strain. So there's been this pressure on the system. And unfortunately, the old chemistry isn't rising to that challenge. So Vaxcyte is built on a novel form of chemistry that's allowing us to preserve coverage on the old strains but add new coverage. That opportunity gives us the chance to replace that existing franchise. That's the belief that we've had when we looked at the technology and we're deciding how to purpose it 10 years ago, we felt like this was the highest and best use of this new form of chemistry. And when we realized we had the potential to have vaccines that could sell $5 billion to $10 billion a year, we believed that could create an engine for a platform company to challenge the oligopoly. Frankly, Pfizer until pretty recently, was a one vaccine company. That was Prevnar, the vaccine we're hoping to replace. And of course, they've spread their wings, thankfully for all of us with COVID, and so we believe we have the kind of products that could allow us to preserve control over these assets, build a large vaccine company with those as our lead forays into the market. And we're applying this technology to a number of additional novel vaccines for which the premise has been proven with other bacterial vaccines, we're applying it to some new targets. And so with that, our plan is to preserve our independence and bring these vaccines to the market as soon as practicable.

Excellent. So maybe, Andrew, could you just frame the current market size and provide some details on infants versus adults?

Sure. No, as Grant said, it's about an $8 billion market today. Pfizer has largely owned that market over the last couple of decades. That's broken down. It's about 3/4 infant and 1/4 adults. So the infant market is about $6 billion. That's a relatively stable market only because babies in the developed and developing world are largely immunized already today. So that's growing essentially at the rate of inflation with annual price take. The adult market today is about $2 billion in size, and that's expected to grow quite substantially over the coming year as really being the driver of the expected growth in the overall market from $8 billion today to $12 billion to $13 billion over the next 5, 6 years or so. And that growth in the adult market is expected to come in a few forms. It's largely a U.S. market today. United States up until very recently was the only country that recommended routine adult vaccination. That today is -- begins at the age of 65. There's discussion about lowering the age down to 50. That's going to obviously open up a larger population of adults and open up the adult market to not only prime adults but to lay and boost them as we do in the infant market, which is a 4-dose market in the U.S. and 3 or other doses elsewhere. The other driver of the expected adult growth is to begin to recommend vaccination of adults in countries outside the U.S. and we saw for the very first time, Germany, just a couple of weeks ago, recommend vaccination of adults there. And we expect that we can get into the reasons why later but we expect that to occur in other countries outside the U.S. as well.

And could you just speak to, and you could be brief but for those that aren't familiar, the challenges that other companies have and trying to step up to compete with your 24- and 31-valent candidates not only in adults but also why some of those efforts aren't even applicable to the 3 quarters of the market that's infants?

Well, this has been a tough space to enter. This has really been the purview of major pharma, in large part because of the complexity of constructing these biologics. We've all gotten comfortable with biologics as a key component of the industry. But for these vaccines, when you hear Prevnar 20 advertised on television, where you hear us talk about VAX-24, our 24-valent vaccine, let on VAX-31, our newer vaccine that is in the clinic today. We'll get the data in the third quarter. These are multi-biologics all intermingled into one. So when you have 20, 24 or 31 conjugates in them, it's really that number of discrete biologics constructed with multiple discrete components that come together to create this class of vaccines. Fortunately, that complexity has paid off very handsomely because when you put together a protein carrier and a polysaccharide sugar that is on the outer code of this class of bacteria, you co-present to them to the immune system, you create this wonderful durable protective immune response. But to make those components, it's terrifically complex. There are an array of analytical assays required to characterize these vaccines in order to understand if the physical chemical presentation is going to confer the right immune reaction. We've been fortunate enough to have our vaccines wild carrier-sparing. So we use less of that protein carrier. Otherwise, we covalently bond them. We present to the immune system, and they respond in most cases, even better than convention but having that marriage between the analytical assays and the immunological responses was a key component for us to actually get control of these from a manufacturing perspective. So we could make them early, know we were making them in ways that would ultimately turn into an immunogenic response. If you're starting from scratch with a novel technology, you're making something, but you don't know if that something is actually going to behave the way you needed to in the clinic. That's been a big challenge for other sponsors. The FDA looks at novel approaches, and they say, -- that looks different. The reason that's really important is this class of vaccines has a long history when you make it in a certain way, it behaves a certain way and so much so that for this class of vaccines, if you have that sort of marriage between manufacturing certainty and the sort of antibody responses, that's been enough to give the agency comfort to grant a full approval just on antibody responses. Everybody is an expert on vaccines after COVID, right? We were all waiting with bated breath for those huge 30,000-person studies to read out to confirm that the people who are vaccinated didn't get sick versus the people that weren't vaccinated. For this class of vaccines, you only have to show the antibody responses because there's been such a durable 20-year history where this type of vaccine prevents the disease. That's all we have to show to serve as the basis of a full approval. We've already had our end of Phase II meeting with the FDA. We know that's the case. If you're making a novel type of vaccine, you don't have that certainty. And so the agency will look at it and they'll say, okay, you're getting some antibody responses in animals, you're getting some antibody responses in people. But if there isn't that same linkage to have it all hang together, it increases the probability that you have to run an efficacy study. And those efficacy studies, when there's a vaccine already available versus COVID, there was no vaccine to compare to, you have to look as good or better than the vaccine that's on the market. These vaccines are terrifically effective. So to show a study that would have an adequate efficacy response would be the size of study we've really never seen. It would be over 100,000 people. It would be very practical to think about doing. So for very novel approaches, for which, frankly, there has not been a lot of excitement around novel approaches in part because of the complexity of manufacturing, the uncertainty that I just described but then also the competition. This is a very competitive space. We think we've nimbly altered the key immunogens that have already been effective but in a way that can create broader spectrum vaccines, which is the primary adoption feature in this class. So it's not to be underestimated. But that's just kind of scratching the surface of the complexity but at least one big part of it.

That's great. Thanks for that color and perspective. So maybe we could turn to the key readout that's forthcoming in the third quarter. If you could set the stage for that, just describe, I guess, the trial and your expectations in terms of comparing VAX-31 to Prevnar 20?

Yes. Thanks for that set up, Dave. So I mentioned it earlier. So we have a 31-valent vaccine that we put into the clinic in December. We completed the Phase I component in December. It was just a quick safety look. We didn't even look at immunogenicity just a week after vaccination. The way the study is designed and in this class, as Andrew was referring for adult 65 and up, they get 1 vaccination with a pneumococcal conjugate vaccine. So that's the standard of care. So our study is designed to reflect that. So we have enrolled 1,015 adults over the age of 50. 3/4 of them are getting VAX-31 from 1 of 3 different doses that we're testing in this first large study. And we're comparing those 3 doses, not only to one another but most importantly, to the market leader, which is Prevnar 20. That is the overwhelming market leader in this space. Merck has brought a 15-valent vaccine to the adult class. But when I mentioned that coverage is the primary adoption feature. Pfizer has 97% market share with their 20-valent and Merck has the balance with their 15-valent. So it's the coverage that's delivered, that's most important. So we've set this up to compare our broadest spectrum vaccine to Prevnar 20. We enrolled the Phase II component in January. So a total across the 2 different stages, 1,015 adults. The key endpoint that we'll be looking for is called OPA, opsonophagocytic activity. It's the functional antibody responses where you confirm the antibodies you're getting kill that specific form of the bacteria. This is the approvable endpoint that the FDA has established going back over a decade. So come the third quarter, we will be releasing the top line immunogenicity results, which are those key OPA results comparing them to Prevnar 20. We'll also look at the IgG antibodies. It's less important but still something that you want to check out. So the hope is to see something in line with what we saw with our 24-valent vaccine VAX-24 that read out over the last 1.5 years across 2 different studies. We had one 800-subject study with VAX-24 compared to Prevnar 20. That was in adults 50 to 64. And then we had a separate study that had 200 subjects that was also comparing VAX-24 to Prevnar 20. What we've done with FX301 is we've combined those 2 studies in one. So it's 50 on up but similar proportions across the age groups. And many of you will have seen the VAX-24 data. It was, frankly, an unprecedented finding where we had a broader spectrum vaccine that not only delivered on those incremental for strains in terms of the hurdle for what the FDA is looking to hit. But then on those common 20 strains, we actually saw a 25% to 30% improved immune responses over the strains that are in Prevnar 20. The convention in this space has always been that when someone is trying to push coverage by adding additional strains, all the immune responses to the old common strains drop. So for the first time ever, we've actually showed not only broader but also improved immune responses. If we see that in VAX-31, that would be a massive home run but that's not the hurdle that's going to be required to get VAX-31 on track for a potential BLA filing and approval. You only have to show noninferior immune responses to the common strains in the current vaccine. The idea is that the newly circulating strains are the ones we're having no protection against, so they're out-of-control. And so that's why the agency has allowed noninferior immune responses. That's the target for this study, noninferiority on the 20 and then the separate hurdle, which is a fourfold rise over baseline for the new strains. In the case of VAX-24, that was 4 more for VAX-31, you did the math, it's 11 more. So that's the data we're going to read out in the third quarter. It will be a really big moment for the company. I think I covered it may be [indiscernible]

Excellent. And so how should we think about the powering study, think about the noninferiority margins, et cetera?

Yes. I mean we're now working with already 1 readout with VAX-24. Prior to that study, we were just powering the study based on the variability of the immune responses. And so we were powering off the data that had already been released of -- from Prevnar 13, let alone Prevnar 20. Now we have the benefit of a treatment effect with our own conjugates. So we're also including the VAX-24 responses because to be clear, VAX-31 is exactly the same 24 conjugates that are in VAX-24 but 7 more added to it. So we already have the benefit of 1,000 subjects for whom we've run a study with our 24 conjugates and the same comparator Prevnar 20. So we have quite a bit to go on. We turned out to be overpowered even for the Phase II study that read out. We hit all of the non-inferiority comparisons and the hurdle for the 4 incremental strains in our Phase II study. That's quite extraordinary. Usually, at least for big pharma and using the conventional technology, the Phase II studies have really served as more of a pilot study to understand their treatment effect, and then they need to power up substantially from a numbers perspective in order to hit that noninferiority comparison. So to put it in relative terms, for Prevnar 20, their Phase III study, they had to enroll 1,500 subjects in the Prevnar 20 arm and 1,500 subjects in the Prevnar 13 arm, which was the standard of care at the time in order to hit the non-inferiority comparisons. They were able to hit that for all but 1 of the 20. For us, we hit the noninferiority hurdle with just those 250 subjects per cohort study. So even though it was an 800 subject study, it was spread into 3 doses versus Prevnar. So it was really 200 subjects in each cohort. That was big enough, 200 versus 200 to hit the threshold. So for us, we'll now have a slightly bigger study, 250 subjects per cohort across the 1,000. So we think we're well powered heading into this study. And by the time you run the Phase III study, which will be the basis of approval, you do have -- you have a chance to enlargen the study even further to protect the downside for us. For VAX-24 we actually showed statistically significantly better immune responses on many of the strains. So we have an opportunity to use that larger sample size to actually show superiority and have well in excess of the power required to show that minimum threshold of noninferiority.

Excellent. Dave, I would say the other thing -- just to add on to Grant's comment, the other thing that gives us confidence in that VAX-24 study, one of the arms, what was what called the mixed dose arm that we designed to give us insight into how VAX-31 might perform. So that is an arm that gives us kind of the confidence and optimism that we have. Grant talked earlier about, right, it's the aggregate amount of protein carrier on board that is a significant influence in the overall performance of these vaccines and immune responses. In this mixed dose arm in VAX-24, we doubled the dose for 7 of the serotypes essentially mimicking the aggregate protein on board for VAX-31. And if we see results for VAX-31 that are comparable to what we saw in the mixed dose arm, that would be a winning outcome for us.

Excellent. Yes, that's super helpful perspective. So then maybe we could just turn to ACIP in July. And what might be the implications for Vaxcyte depending upon the outcomes for Merck?

Yes. So the ACIP, which is the council on immunization practices within the CDC, this is the body that recommends how doctors should adopt new vaccines, and they set up the whole regimen. So as Dave has pointed out, Merck has developed a vaccine called V116, which is a clever application of the old technology. They recognize that a number of the strains -- I mentioned before, the strains that are under control shouldn't be removed from the vaccine regimen because they'll come back but you're always stretching to improve coverage of the newly circulating strains. We recognize that, that was the impetus behind VAX-31,let-alone VAX-24 was to keep all of the historically circulating strains. This is the bacteria that has the best fitness to traffic from -- I'm not going to single anybody out but many people at this conference will carry in their upper respiratory track this class of bacteria, it's not a big problem but if it traffics down to your lower respiratory tract and if you're immunocompromised, that's when people get sick. So the strains that have had the best fitness to survive in your upper and lower respiratory tract are the ones that cause the most disease. Fortunately, we've been vaccinating against that -- those particular strains for a long time. But what's been shown is, and I'm getting to this your question in a second, is that if you withdraw coverage of those strains, they'll come back. So that's why we've stretched to create a 31-valent vaccine. The old technology will only allow you to put 20 or 21 conjugates into the same vaccine or the immune responses will get so low that you can't get protection. So to Merck's credit, they cleverly looked at the problem and they said, well, we can only have 21 conjugates in the vaccine, which 21 would be like in it today, the ones that aren't circulating today aren't the problem. The ones that are circulating today are the problem. So they slid the coverage off the original 9 strains that have been circulating historically and picked up new strains that are currently circulating. It's a smart play if you're restricted to '21. And so this is this vaccine called V116. They have released some of the Phase III data. I think everybody believes it's on track for an approval. So as David has pointed out, the ACIP is wrestling with how do we handle this? This isn't exactly ideal but they have an uncontrolled problem today, which is these newly circulating strains. So the ACIP always is prepared to make a decision at their first meeting after a new vaccine is approved. That vaccine has a PDUFA date in mid-June. The ACIP meeting that's already regularly scheduled is like the last couple of days of June, so maybe just before July. And at the meeting prior to that one, they always begin the debate. So just over the last -- it was last week, right?

2 weeks ago.

2 weeks ago, they had the penultimate meeting to start debating this. And so they were looking and presenting some of the V116 data, and they were wrestling with these challenges of how to handle this new slightly different twist on a pneumococcal-conjugate vaccine. And what Merck had been hoping for was that the newly circulating strains would be enough for that vaccine to get a preferred recommendation because given that many of these older strains aren't showing up in the surveillance databases, their coverage looks much better than today's vaccine. That does not appear to be the track that the ACIP has this vaccine on. And in fact, you can go back and look at their kind of publicity messaging, which was, "Hey, we think we're going to get a preferred recommendation." And then right before the meeting, they're like, "Well, we're not so sure we're going to get a preferred recommendation." I think that's the takeaway from this penultimate meeting, they didn't really debate it, which usually means it's not on the docket to consider. That said, it does certainly look like it's going to have a place in the regimen but it's more likely we'll find out at the end of June, that they'll recommend both Prevnar 20 and V116 as an alternative and let the medical the community decide. That's the most likely outcome. They could surprise us, give it a preferred recommendation. I think that's very doubtful. They could also sequence it the way they had historically done with Prevnar 13 and Pneumovax 23, it could look something like that where you start with Prevnar 20 and then follow up later with V116. The biggest outstanding question in my mind is whether or not that vaccine would get a catch-up recommendation, which would mean if you had already been vaccinated with Prevnar 13 or in the rare occasion, the 15 valent Merck or even potentially Prevnar 20 when you come back for another visit the next year, you might get a catch-up with V116 because it is covering more of these out-of-control strains. That would be good for Merck. For us, just to put our spin on it, VAX-24 looks like a much better alternative to Prevnar 20 because it's more broad spectrum, has higher immune responses and would set us up well for that foundational vaccine but VAX-31 has even broader coverage than both V116 and Prevnar 20 combined in a single vaccine. So that's what is making the third quarter, I think, so exciting for us. I think we're in a good position with VAX-24 but we'll really be in incredibly good position if the VAX-31 data is as good as we hope.

Excellent. That's great. So maybe we could talk about competitors that are pursuing broader coverage. So specifically Glaxo, which had acquired Affinivax, could you just compare and contrast your technology with theirs? They've obviously struggled. They've had delays and it's still unclear what 30-plus means for them and whether they can get there. But if you could provide some perspective, that would be helpful.

Sure. Yes. So Affinivax is a company that got started right around the same time we did, I think, maybe a year after us, originally back from the Gates Foundation, acquired by GSK a couple of years back, and they had gotten into the clinic before us. So they had generated human clinical data. GSK acquired them after they produced that data. We were still in preclinical. Interestingly, I will get to the technology in a second, one of the big admissions was that GSK said when they bought the company, they were going to have to basically go back and refurb their supply chain and transfer it over to some of their own existing manufacturing, which is quite an undertaking. I talked earlier about the complexity of these vaccines. They have some differences but they also have some similarities. And so that was a big undertaking, and they actually reset the time lines quite a bit. I think the quote at the time was back into the decade for a potential launch, which was not surprising for the infants because as Andrew referenced earlier, the kids get vaccinated 4 times over up to a year -- 15 months of life. So it takes a while to run a clinical study but they also said it would be simultaneous for the launch of adults as well. So that was a bit of a surprise to everyone. Since then, they've said publicly, they've had some fill/finish issues. So I think they've had some delays relative to what they were originally hoping, we'll see. But the bottom line is their approach is quite a bit different than the convention. I talked earlier about some of the complexities of these vaccines but we all know physicochemically, what these conjugates need to look like to get immune responses. They're doing something quite different. They're not covalently linking them and they're trying a novel protein carrier. And so the whole class of vaccines that we've been talking about today is built on this ability to get T-cell immune responses that lead to boostable and durable protection. Those come from the protein carrier that while I've tried to distinguish what we do from what Merck and Pfizer do, the one thing we all do that's almost exactly the same as we use a diphtheria toxin protein carrier. Diphtheria toxin has nothing to do with protecting against pneumococcal disease but we all know after decades and decades that it has T-cell epitopes on it. And when you present those simultaneously with the pneumococcal sugar bacteria, you get an immune response against the sugar that's protected against pneumococ side. What Affinivax, GSK guys are doing is trying a new protein. And again, in their original publicity, they said, "Well, we're going to have to redo the manufacturing, and we're going to have to figure out if this stuff is boostable," which is getting to my very point, which is if you don't have the right T-cell immune responses that are going to drive the boostability and the durability, you don't have a pediatric vaccine. You can't actually get approved. It's one of the co-primary endpoints is the boost. So that's still a big open question even a few years after the acquisition. And the adult market, I think Andrew touched on it, it's looking more and more likely. We're going to start vaccinating adults at younger ages. They were just debating this 2 weeks ago at the ACIP. And the younger you get vaccinated as an adult, the more you'll need to be boosted as you get older. So we think across the board, boostability is going to be fundamental. Everybody who's doing the Merck, Pfizer and our approach where you're using the diphtheria toxin protein carrier is assured that you're going to get a boost. But using a novel protein, it's very much in question whether or not that's going to be the case. So one of the big problems for them is they started a pediatric study. They had to stop it because of these fill/finish issues. Apparently, they're going to restart it later this year but they're still years away from finding out whether or not this technology is boostable. So until you have that answer, you don't really have a competitive vaccine in the largest segment, which is the infant market. And in the adult market, you may have a sliver of opportunity. But as the market evolves and we start seeing more of a prime boost, that could be a big problem, too. So without going into the great details of the technology, that's kind of the top line, I think, differences between us and them.

Excellent. So maybe we could pivot to the financials of the company, the burn rate, which you've talked about in terms of the duration of cash based upon your expectations?

Yes, sure. No. We're in a very fortunate position. We've been gratified to have continued to be able to raise capital. We completed a large financing earlier this year. The net proceeds of which pro forma put us in a position to have over $2 billion on the balance sheet as of 12/31, again, pro forma for the financing we did, which -- under which we net a little over $800 million earlier this year. The burn rate is increasing as we're getting into larger and more clinical trials. And as we parallel path that clinical development with, as Grant said, the manufacturing investment to put us in a position, it's important that we can demonstrate we have the capability to supply the market to garner the kind of recommendations we're seeking from the ACIP and the other recommending bodies throughout the world. So we just -- we have a long-standing partnership with Lonza. We just entered into a new agreement with them late last year under which we're constructing this dedicated suite in an existing lines of complex that we believe will put us in a position to supply kind of the global market in the developed world. So for clinical development and more importantly, manufacturing reasons, we expect that burn rate to increase. Standing back overall, we've got sufficient capital to fund through several milestones over the next few years. Grant talked about this VAX-31 readout in the third quarter. We have 2 the infant trial readouts. We have a readout expected by the end of the first quarter of next year and the other booster data by the end of next year, we'll certainly fund us through those. And with this VAX-31 data in the third quarter, we will make the decision as to whether we pursue VAX-31 then for the adult market or instead pivot to VAX-24, in either scenario, we've got the capital to fund through the Phase III readout from the key noninferiority study as part of the broader Phase III program for those.

Got it. And then since you touched on it and I did want to cover it, could you talk a little bit about the infant trial that will be reading out and then the potential of if there is very compelling data from VAX-31 in adults, whether you'd potentially pivot for infants to BAC31?

Yes, it's a different situation in the infant market. In the adult market for reasons we don't have time to get into essentially the Phase III time lines overlap putting us in a position to have this opportunity to make this decision. It's either our VAX-24 or VAC31. In the infant market, the time lines are different between the 2. So the plan is to pursue VAX-24 first, followed by VAX-31. And in the infant market, you also don't have the V116 in that market. So VAX-24 is a clear -- very clear best-in-class program that will extend the coverage VAX-31 certainly as well. So the VAX-31 infant trial, we announced early last week that we completed enrollment in that study. So we're now moving into execution phase and expect the important first co-primary endpoint. As I said, by the end of the first quarter of next year, that's the most difficult to hit and the more important of the 2 and then the booster data to follow about 9 months thereafter by the end of next year. But we continue to advance VAX-31. You cannot go into infants until you prove both safety and immunogenicity in the adult population. So with this VAX-31 adult readout expected in the third quarter, if those data are as we expect, we would then move to submit an IND and begin the VAX-31 program in the infant population.

Got it. And so assuming the data for VAX-24 is compelling both the initial data and the booster late next year, it would be a Phase III start in 2026 for VAX-24 in infants?

We haven't guided to that specifically. I think we want to get through the data and then see where we are for the Phase II, but we haven't guided to the infant time lines quite yet.

Got it.

And we expect and plan to move as quickly as possible to that market.

It's not unreasonable assumption but -- until we get there.

Yes. Yes.

Excellent. And like you said, it's -- there's no competitor to worry about to VAX-24 in infants. We'll see how the market evolves. But okay, that's helpful. Turning to the broader pipeline of the company. Oh, do we have -- we're out of time already. Oh, I didn't see. Sorry. Okay. We are out of time. I thought we had 5 minutes left.

I think you already set the clock but it's...

5 minutes. Right. I wanted to keep rolling. But I think I've just been cut off. I got the hook. All right. Thank you so much for being here.

Thank you, David.

Thank you.