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

We're going to get going with our next company presenter at the BofA Annual Healthcare Conference. We're joined by Vaxcyte and CEO, Grant Pickering and Andrew Guggenhime, CFO. So gentlemen, thanks for joining us and looking forward to a discussion ahead of a very important year for you guys in terms of further validating your vaccine programs for pneumococcal disease.

I thought maybe a good place to start was just you operate in a space not typically trafficked by a lot of biotech companies to say the least, it's typically a reserve for a lot of deep pocketed pharma. A lot of, I'd say, probably high capital commitments on the upfront side. If you've got a great vaccine with an ACIP recommendation, it sells itself probably less capital intensive on the back end, unless you look to be global supplier of the market. So maybe just talk a little bit about what makes your company unique and able to not only exist but really thrive so far as a company in this space. You've turned over an impressive 2 data sets really with Vax-24 and we're going to get in the Vax-31. But maybe if you can kind of lay that foundation and then we'll jump into some more detailed questions.

Yes. Well, Jason, first of all, thank you for having us delighted to join you guys here at Las Vegas again. Thank you all for coming. Yes, I think you could probably break the history of Vaxcyte into discrete chapters. There was the opportunity itself the realization of the opportunity as the company has progressed. And I think that first part is characterized by how attractive this class of vaccines actually is. So we've all become vaccine experts over the last 5 years. And what is a hallmark of this class, and I'm talking about pneumococcal conjugate vaccines, is the durability of the class. It's a very steady class. Every birth cohort gets these vaccines. Older adults now get these vaccines certainly here in the U.S. and beginning to happen in other developed countries. And that means you've got not only a stable market, but a very large market. So it's about an $8 billion annual run rate for sales of these vaccines. And the development of this class is also more efficient than some other vaccine classes where when you're developing a completely novel vaccine. Of course, it's interesting to show antibody responses in people, but you don't know if you have a vaccine until those antibody responses actually correlate with protection, which you won't find out for many years after running a clinical study. So that ends up making it very capital intense and very risky for earlier-stage investors. And in this class, the approvals are now based on validated surrogate immune endpoints, which are those antibody responses. The reason for that is the original efficacy studies that were run showed very clearly that if you got antibodies of a sufficient level, it protected and these are extremely effective vaccines. So that made for a very interesting opportunity when we recognized that we had a new form of chemistry that could allow us to leverage the same basic immunogens that have fueled this class, but put them together in a way that could allow for broader coverage, which is really what drives the bus in this class. We'll get more into that later. So we thought we had a really interesting opportunity with a very important new technology -- and then the second chapter of this company and this story really came after those clinical data readouts that we obtained over the last couple of years. So we went from private capital, to now having been a public company for 4 years, where I think a lot of long-term investors see the potential to build a really important new class of pneumococcal conjugate vaccines around a new company. And so the underlying theme to your question is access to capital. So this is an expensive class. All vaccines are successful only if they're able to supply the market. And the investment associated with producing global supply is quite intense. So we have raised a substantial amount of capital. It's the access to that capital that has allowed us to continue to prosecute these vaccines in ways that we think we're maximizing value for all involved, and will ultimately help us deliver these vaccines as broadly as possible.

Yes. So most biotech companies typically get seeded enough capital to run a couple of clinical trials, right? And that's the extent of the leash that they get. You guys talk about like the mix of investments you've made from a clinical trial perspective versus like the manufacturing investment that you made, the dedicated suite you have with Lonza now. Just give us a little bit of flavor for where you're at with that and what that affords you now versus what will require further investment?

Yes. I think to play off to Grant's answer, I mean, this is a space where early clinical data has remained consistent through later clinical trials. And if you look at prior sponsors, 100% of companies who have shown positive Phase have gone on to get positive Phase III data. And so the level of confidence that we now have based on this positive Phase II clinical data, and we have 2 data sets as we've talked about, gave us the confidence, and I think the confidence of investors to make the investment perhaps earlier than one otherwise might in manufacturing. That's important because this is a huge market. So you need to have the product available to supply the market. It's important because to garner the recommendations from the recommending bodies. Demonstrate that you can deliver that capacity. So we made the decision a couple of years ago. We were working on this, but ultimately made the decision late last year to execute a new agreement with Lonza. We think the world's leading CMO, with whom we've been partnered for the last 7 or 8 years. But this is a new investment with them under which we are building out a dedicated custom suite within their kind of marquee IDEX complex in Switzerland to give us the capacity to supply both the global infant and adult markets in the developed world. And so that's an effort underway. We've guided to $300 million and $350 million in spend over the next couple of years to do that. But we've been fortunate to have had the clinical data, as I said, to give us the confidence to make that investment. And that's to satisfy the later launch, we're separately working on completing out the readiness for our initial launch in the adult market, which is principally in the U.S.

Yes. Okay. You mentioned about an $8 billion pneumococcal market. How do you see the space evolving in the next few years ahead of your launch? There's obviously some competitive entrants. And what would you see as validating, generally speaking, for the more coverage is better hypothesis, which lends to your story?

Yes. Maybe I'll start there just on the market, $8 billion market that's comprised about $6 billion, the infant side market and the infant market is larger for 2 reasons. One, it's a global market, really in both the developed and developing world. These are recommended for all birth cohorts, and it's a multidose market in the U.S., infants get 4 doses in their first year of life. The adult market is the balance of $2 billion historically. That has been a U.S. dominated market and it has been a one-dose market. So if you look at projections by a number of third parties pretty consistent estimates that the growth of the global market is going to increase quite substantially from the current $8 billion to $12 billion to $13 billion over the next several years, driven by several reasons. Most of that growth in the adult market, an expectation that, ultimately, the recommendation for adult vaccinations, at least in the U.S., will drop from age 65, where it is today, down to age 50. That opens up, of course, a larger market. You have far more adults entering their 50s than their 65s. And then likely would also convert the adult market from a single dose market to a prime boost market, further growing that market. And then outside the U.S., as I mentioned, historically, has been a U.S. dominated market in the adult population. There is an expectation, and we're now beginning to see countries outside of the U.S. make recommendations for adult vaccination. Germany being the first example a couple of months ago. There's a discussion that's going to happen in U.K. as well. So there is an expectation that we'll begin to see recommendations around the globe. And then the last thing I would say, and this is applicable to both the adult and the infant markets when new premium -- new broader spectrum vaccines are introduced, you typically see premium price afforded to those vaccines given the improved health economics that the broader valent vaccines address. So that's, I think, just the size of the market and the expectations. And Jason, to your question about the dynamics of the market, it historically has been the case for the last 20-plus years that broader spectrum vaccines in the market. We do not see that dynamic changing. There are some interesting things afoot in the adult market today that are probably worth discussing. But overall, we continue to believe, and I think history has proven that broad respective vaccines garner the overwhelming market share, either because of the ability to obtain the preferential recommendation from the various bodies or simply because in physician practice, they move to the broader spectrum vaccine.

That's a good segue, right? So adult market has some growth levers to it. As we look ahead, maybe just curious to get your perspective, Merck's V116 as a PDUFA hasn't -- we have an ACIP meeting shortly after that. What would be your expectations to come out of, I guess, more importantly, I guess, the ACIP meeting at this point. Either be it from a recommendation for more coverage, gets prioritized and/or potential for ACIP at that point to even recommend a drop-down of 50? Or is that something that you'd envision happening much later?

Yes. So that ACIP meeting is coming up at the end of June. So we'll be upon us quite soon. And just prior to the last ACIP meeting, they already set the stage for what we think they're going to do at this next meeting. And I think it's pretty clear that -- well, before I say that, usually, the most important thing to obtain in this class is a preferred recommendation. Because if you get the preferred recommendation for your vaccine, there is no competition. It's just rapidly adopted and replaces whatever the current standard of care had been. So heading into that last meeting, that was the open question was whether or not the ACIP would lean toward granting this new vaccine V116 to the extent it's approved, a preferred recommendation. But the conversation was very clear. They weren't seriously considering that. And the bar for a preferred recommendation is driven by 1 of 2 directions, either substantially improved efficacy or substantially improved coverage. And as Andrew had alluded, coverage really has been king in this class. So while V116 does have broader coverage in this moment, the problem and the center of the debate at the ACIP was around the following issue, which is in exchange for broader coverage, the design of that vaccine excluded 10 strains of the bacteria. And those 10 strains of the bacteria are the strains that have historically circulated. They've been most problematic historically. But they've been under control because we've been vaccinating them on a regular basis. So they've been suppressed. And if one was to switch over to V116, the risk is that those strains would reemerge. And we've seen that in one of a few instances where we've seen a similar set of circumstances. So the belief is still there that if you can provide broader coverage and it has to be substantially broader in combination with an ability to continue to suppress those older strains, that's the kind of profile that I think would resonate with them for a preferred recommendation. But unfortunately, we're just not there yet with the programs that are at that point. And then -- so that was the first key topic. But then as you pointed out, there's also the notion of bringing these vaccines down to adults when they turn age 50, instead of the past approach where we're just giving these vaccines to adults when they turn 65. So they did deem that to be a probably yes sort of decision. The question is when will they take that decision. It's hard to know whether or not they'll make that recommendation at this upcoming meeting or if they'll wait and see how the market evolves in the context of this new vaccine presumably being introduced into the regimen and see how things play out from a usage perspective. The other interesting dynamic at the ACIP if you've listened in or read the transcripts, they get very nervous about how confusing these regimens can be for doctors. And we've got a scenario where the RSV vaccines are being integrated into practice. And the idea of bringing this class of vaccines to a much larger swath of the population. We're talking about 65 million Americans, with kind of a jump ball between Prevnar 20, which is today's standard of care, and V116 could create some serious confusion. So I would imagine that will be part of the debate when they meet at the end of June.

Great. Maybe we could shift to category killer.

I think I know what you're talking about yes, that is an affectionate pet name for our vaccine Vax-31. So the dynamic that I described was very much in mind when we designed this vaccine, but we have 31 different conjugates in VAX-31. It covers 95% of the circulating strains in adults here in the U.S., even a bit higher in Europe. And we've maintained those 10 strains that have historically circulated, so as to ensure that we deliver what not only the ACIP is looking for, but what we think will have the greatest impact on global health, which is addressing the largest amount of circulating disease possible while continuing to suppress those historically problematic strains. So yes, that's Vax-31. The program is at a really important inflection point. We completed enrollment in a 1,000-person adult clinical study in January. We've announced publicly that we expect see the results of that study in the third quarter. So it's going to set up for a really, really important readout for Vaxcyte later this year.

So you talked a little bit about the translatability of these Phase II adult data sets to later clinical success. Maybe talk a little bit about the rabbit model data that you looked at for Vax-24 that were largely mirrored in the human experience. Tthen you went to VAX-31 with a similar animal model. Just what you draw from the animal work that's been done on Vax-31, because one of the most common questions I get from investors as well, it's kind of hard to diligence Vax-31, right? And you have some animal data and then you have some experimental work you did with a mixed dose to mirror, I guess, the amount of protein carrier that's employed in your Vax-31 formulation. So maybe just long-winded way of asking about how you feel about how derisked this is and what you've been able to learn so far about this program.

Yes. I mean you've touched on the high points. So Andrew was talking a bit about the continuity in this class. It's been quite remarkable. So this class of vaccines has been around for 24 years. And there has been remarkable consistency between the design of these vaccine immunogens and not to geek out on you guys. But this class of vaccines is characterized by these intend cross-linked matrices of the polysaccharide sugars and a protein with T cell epitopes on it. And if you can make those conjugates and characterize them in a consistent way, everybody uses the same means. The translatability between those constructs and immunogenicity in animals in this rabbit model and then immunogenicity and people has been incredibly consistent. So when you can make them in the right form, put them into rabbits, and you can show that they're boostable, you give the rabbit 2 different doses. And after the second dose, they get a much larger immune response after the first, that's showing that you're getting memory, you're getting a prime, you're getting a boost. And when every developer that I'm aware of has shown that data in rabbits and taken those constructs into people, they've got really good immunogenicity in people. So that was kind of what we started with 10 years ago. And in our own experience, it's entirely held. So for Vax-24, we iterated and maximized immunogenicity and stability preclinically using rabbit data. We took those best of the best conjugates into the clinic in the form of Vax-24. And I'm sure most of you have seen those results. We went 24 for 24 in terms of hitting the minimum hurdle for approvability in this class, and did that in the context of a broader spectrum vaccine in ways that no one has ever been able to produce. And the reason for that is our unique chemistry and our ability to use a more sparing amount of the protein carrier. So the translatability between rabbits and humans has been extremely reassuring. And now we have the benefit of clinical data for 24 of the 31 conjugates that are in Vax-31. So all 24 that we've already had good rabbit and human data are now in Vax-31, along with 7 more conjugates. And we've done likewise in terms of characterizing all 31 of the conjugates, confirming their immunogenicity in rabbits. And we have this data from the Vax-24 studies, where we not only showed that all 24 could look great at a single dose. But when we doubled the dose of 7 of them, that actually mirrors the cumulative amount of the protein carrier that's in Vax-31. And that cumulative amount of protein carrier has been the culprit that has held other developers back because they have to use more of the protein than we do using our chemistry. And so that mixed dose data, as you pointed out, is another level of reassurance that we have heading into this clinical data readout.

So the Phase II data readout roughly 1,000 adults, I believe. On one hand, your active comparators, PCV20. But you want to do more than PCV20, right? Because you have to make a decision between Vax-24 and Vax-31 and what to advance. So talk about how you think through that? And you get the question a lot about sort of defining success. So I'll leave that to you.

Yes I mean I think at its highest level in this maybe a simple answer, but we're looking for data that we believe in a Phase III program would represent an approval profile. I think there are lots of ways to win in the study. So yes, we have 31 conjugates. We'll be -- for 20 of those, we'll be comparing PCV20, and then we have, right, 11 incremental serotypes. The bar for those incremental serotypes has historically been easier to hit for other developers, and we saw that in our Vax-24 study as well. So we feel confident in our ability to deliver on the requirement for the 11 incremental serotypes. And then on the 20 common serotypes, we're comparing to PCV20. We did that comparison in the Vax-24 study as well. Admittedly now, we have more serotypes and therefore, more protein. But again, this mixed dose arm in the Vax-24 study gave us insight. And so we'll be looking the data and assessing this on a serotype by serotype basis. But do we see a profile that we think in a larger Phase III study where your error bars are going to inherently tighten, we think we have -- would have a data set that would warrant approval? And as thrilled as we were to have done 24 for 24 for the Vax-24 study, as you well know, Jason, that necessarily wasn't our expectation going in. And so we feel quite confident in the prospects for Vax-31; 31 for 31 is also not the expectation that would be an absolute best case scenario. But as this space has historically shown, that is not necessarily the requirement for approval. And for us, the consideration we think is going to be really important is PCV20 provides disease coverage of about 65%. With Vax-31 we'd be taking that up to 95%. So we're addressing 11 incremental serotypes and substantially increasing the disease coverage, which is going to be an important factor for us and ultimately, the regulatory authorities as to how they assess the data from the program.