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

All right. Great. Let's kick off our next session. Very pleased to have the management team of Vaxcyte here with us, Grant Pickering, CEO; and Andrew Guggenhime, CFO. Grant and Andrew, welcome, and thank you for being here.

Thank you for having us, [ Asad ]. Great to be here.

Great. So I guess, maybe we can just start at a very high level. In a nutshell, for who perhaps aren't familiar with the Vaxcyte story, maybe just give us a quick overview of the company, including the mission and the focus and how the company came about and when it was founded, et cetera?

Yes. So the company got started 12 years ago. I cofounded the company with 2 colleagues. We have built this company on top of a proprietary platform. It's a cell-free protein synthesis platform that was originally invented at Stanford. We have the exclusive rights to the technology for the field of vaccines. The platform allows us to perform exquisitely precise conjugation. And we have focused the technology initially on developing a best-in-class pneumococcal conjugate vaccine. That's what we have become known for. But the whole company is built on that platform -- and what we have been able to show is that we can take the same components that have created the largest vaccine segment which is an $8 billion segment. And we can put these components together in a more nimble fashion that allows us to side step a governor that limits the breadth of coverage that the incumbents have been able to reach. So we have a 31-valent pneumococcal conjugate vaccine that's our lead program that's poised to go into Phase III for adults. And then bunch of other stuff going on. But why don't I stop there?

Yes. Grant, anything to add to that? Anything to add?

No, Andrew covered it well.

So I guess, one big picture question that we're asking all of our companies just to sort of level set, it's just the external environment and the amount of uncertainty that's going on. So over the past 3 weeks on the policy front, there's been a lot of sort of changes in terms of just CDC and the FDA and new language and new regulations around vaccines. And it seems to have culminated last night with this announcement that 17 ACIP members were going to get disbanded and that the ACIP meeting is still going ahead. I believe, it's on the docket for the 24th of June. So at a high level, maybe talk us through your interpretation of what that means? Does it impact the company and just maybe some early thoughts there?

And before Andrew answers that question, I'm going to contrast the uncertainty with some certainty, which is pneumococci is the bacteria that we're going after with our vaccines. It's a ubiquitous bacterium that kills infants and elderly people at a highly alarming rate. And the current standard vaccine in this class only covers about half of the circulating disease. Our 31-valent vaccine covers 95% to 98% of the disease. So the certainty is a lot of people are going to die if we don't have broader spectrum vaccines. [Break]

Actually, you know what to start over with the thought. How about that? Then we'll go to Andrew.

Yes. I chose to give a public service announcement before we answer your question. Continue with uncertainty, so some might have accused me of pulling that alarm to end on the certainty. So I was just emphasizing how important this class of vaccines is in light of all of the uncertainty that we're digesting on a daily basis. I wanted to make sure people understood how important pneumococcal conjugate vaccines are and how large of an improvement, our 31-valent vaccine has an opportunity to provide relative to today's standard of care. I think I got my point across. There you go, in alarming fashion, and --

You were teeing up Andrew.

That's right. Now let me hand it to Andrew to address the tougher question.

Yes. Great. So thanks for the question. No doubt, over the last 6 months, and I think, frankly, we should expect that in the coming months, there's been a lot of noise, a lot of news flow, many headlines. As I said, I think we should continue to expect that. Last night was another example of that. And I'll answer that question in 2 ways, kind of what we're seeing, what we're all seeing from a macro perspective, at least through our eyes. And then to your question, our interactions with FDA. I would say, our focus has been, notwithstanding all of the news flow in the headlines related to that news flow oftentimes very sensational and met with a pretty swift and severe reaction. Our focus has been really trying to assess out the difference between the headlines and the actual substance or policy change. And much of what we've seen over the last 6 months, which is not necessarily a prediction of what will happen in the future is, in reality, the underlying acceptance is far less than headlines. And I would say just up through last week, the kind of the backdrop has been perhaps more constructive for a vaccine specifically than in recent months. [Break]

In fact, they've improved on the margin as well.

They improved the margin. For those of you listening to this on the webcast, we're managing through a false alarm here. So I appreciate your patience. But yes, it's been much more benign. And over the last few months, with Dr. Makary and as head of FDA and Prasad more recently as head of CBER, both have indicated their support for vaccines, their belief in vaccines. And this new vaccines framework has been confined to date to COVID, right, the comment with respect to placebo-controlled trials as they've indicated, not applicable when you have on market comparators. So I think what we're all reading are more consistent, I think, constructive comments. We've seen 3 vaccines approved in the last couple of weeks, 2 code vaccines and perhaps more importantly, right, Sanofi's meningococcal vaccine. So things are moving forward, things are getting done on time, and I think quite constructive. And as Grant said, PCVs are really one of our bedrock immunization programs. And if you look across the developed world, PCVs are administered in each and every country around the developed world. And so we look at the headline last night, I think we're still digesting that. This is the headline you mentioned RFK Jr. Secretary Cannabis OE piece. We're still digesting that. And frankly, we learned about it when all of it and in our conversations with focus on The Hill, members of Congress, we're learning about it then. I think there was a little heads up given, if any, to folks involved on The Hill or in policymaking functions in Washington. ACIP is an important body, right? It's important in reviewing the vaccine data, making recommendations that inform access insurance coverage, right, where we're going to orient our health policy efforts. Senator Bill Cassidy tweeted shortly after the OE piece. He's Chair of the Health Committee, many of you might recall, he led the process with respect to the nomination and presence of Secretary Kennedy then the nominee at the Health Committee. He tweeted his concern about this and seeking to engage with Secretary Kennedy to ensure that folks, we don't place folks who are suspicious of vaccines onto the ACIP. So look, it's something we're watching closely. I will say as it relates to Vaxcyte, we won't be before the ACIP for a few years as we're tracking here. It will be -- it's not prime now, and it's not prime for a few years. So it will be a few years out before we would come before the ACIP. But nonetheless, we're watching this. We're deeply engaged with folks in Washington on The Hill. We've been meeting with just as recently as last week, members of Congress, both senators and representatives and now beginning to engage with folks at the agency. And we continue to hear very bipartisan support for vaccines. And I'll just close by saying we, of course, are also ourselves interacting directly with the FDA. We operate -- we've been afforded breakthrough therapy designation that gives us an opportunity to engage more frequently and with higher levels of the FDA those engagements began in the prior administration and prior FDA leadership and have continued under the current administration and current FDA leadership, the folks with whom we're engaging with the FDA have not changed then and now nor has the tone of those discussions. And as Grant said at the outset, we're on the cusp of initiating our Phase III trial upon the conclusion of an end of Phase II meeting with FDA.

Very encouraging to hear. And it seems like the situations are dynamic, Andrew, even as you and I were walking up here, it seems like there's already been some movement in terms of new personnel being appointed in relation to the announcement last night. So okay, let's go -- let's zoom out again and Grant, maybe I'll hand it back to you. Just frame the overall market and the evolution. I mean this is a market in which Pfizer has historically been the leader with the Prevnar franchise. Merck has obviously been involved as well and they're making a big push with CAPVAXIVE adult. So how is the opportunity involved? And what are the growth drivers that you see just high level going forward?

Yes. So this has been historically the largest segment of the vaccine sector. Currently, it's an $8 billion revenue generating category. Most of the historic sales have been in the pediatric segment, in part because children receive multiple doses of the vaccine, whereas adults only have historically gotten a single dose. It is evolving on a number of different levels. The adult population hasn't been routinely vaccinated globally. The U.S. has led the charge there. We've been doing it for the last decade. But last fall, we began vaccinating adults when they turn 50 instead of when they turn 65. So that's a very new development that hasn't really impacted the revenue rate yet, but that would be a big driver of future growth. When is that going to get instituted? So that did get approved last October, and we'll start to see the expanded usage as more and more people begin getting vaccinated. So that is coming soon. Furthermore, as broader spectrum versions of pneumococcal conjugate vaccines have come out it's become easier for other developed nations to justify adult vaccination campaigns. But again, that's a brand-new phenomenon. Just really in the last year or so, have we started to see other developed countries like Germany, France, England, either make the choice to begin vaccinating adults or begin the process of doing that. So there are 2 major growth drivers in terms of the age of adult vaccination and the number of jurisdictions for which we expect adult vaccination. So the market is expected to grow quite dramatically. The pediatric part is mature, but the adult part is growing and expected to grow. And perhaps be in parity relative to the pediatric portion as we see a market that could be as large as $13 billion to $15 billion in the next 5-plus years. The other major change is that what has historically been effectively a monopoly Pfizer with their Prevnar franchise, there are now new entrants from Merck, both in pediatrics and in adults. So the market has become more dynamic, all being driven by the desire to have broader spectrum vaccines. But both Pfizer and Merck are using the same underlying technology. So even though Merck has come out with a broader spectrum vaccine for adults, the only way they were able to get there is to pull out a number of the older formerly circulating strains which without continued coverage may well reemerge.

So there are certain trade-offs that both of the current market leaders have had to make that we don't think will apply to our technology. And that's a great segue into my next question, which really has to do with your technology and your own programs, I guess, a big differentiating point from legacy technology versus yours is higher valency and that your technology enables. So at a high level, what does it mean for you to be able to add more serotypes while avoiding carrier suppression, like break that down for us? And why is this an advancement in the field?

Yes. So it's all about coverage, right? You want to have the most broadly protected vaccine that you could administer in a single vaccination in order to provide almost instantaneous protection for the individual. And it just so happens that the way that this class has evolved is that the vaccines themselves are so effective that when you put out what was originally a 7-valent vaccine, this was Gen 1, 25 years ago for Prevnar, those 7 strains of pneumococci were effectively taken out of circulation. But the bacteria has many strains over and above those original 7. And so in their place, other strains of the bacteria had an opportunity to flourish in that void. It's a phenomenon called serotype replacement. And so it puts the pressure on the developers to add additional different strains of the bacteria to the same vaccination while not taking out the old ones because they would reemerge, and so we've learned that as they added more versions of the conjugates to a single vaccination, the overall immune responses get lower and lower for the individual serotypes. We have a method via our chemistry to take the same components, use less of the one that begins to distract the immune system, and that's what allows us to create broader spectrum versions with more conjugates without losing the immunogenicity. In fact, we showed just the opposite that was the huge breakthrough data that we put out last. We showed a broader spectrum vaccine with better immune responses, which was the exact opposite of what has been shown historically, which was broader coverage but lower immune responses.

Okay. And I guess maybe moving into the opportunities that you described with the adult and the pediatric population, just starting with adults. So regarding VAX-24 and the 31-valent, you had some data, I believe, last September that prompted the decision to move forward with the program in Phase III over the lower valence. So I guess at a high level, just what were the takeaways from that data? And I think you may have already just touched on them a little bit.

Yes. So I mean it's a continuation of just that theme -- thank you for that segment. So what was the big surprise was that for us, we had already shown VAX-24 when we compare our 24-valent vaccine compared to Prevnar 20, today's market leader. We had shown broader coverage, better immune responses. But then when we had our fast follower of VAX-31 teed up, we thought we'd see some carrier suppression when we added 7 more conjugates. That turned out not to be the case when we got that data last September, as you referenced. So we are showing that we can add more conjugates to get better coverage without paying a price in the immune responses. That's what allowed us to graduate upgrade from VAX-24 to VAX-31 last fall. We've now shown initial data in infants with VAX-24. We have already a VAX-31 infant study that's underway, and we'll have that data next year. And ideally, we'll have a similar opportunity to upgrade to a broader spectrum vaccine.

And you've said that you're expecting the main Phase III to start. I think you've said middle of 2025. Has that started yet?

It has not started yet. We just reaffirmed the guidance recently that we are planning to initiate the Phase III pivotal program for VAX-31 in adults midyear this year.

And have you determined the dose?

We said precisely which dose we had options. So the study that read out last fall was a dose-finding study. We ruled out the lower dose where we had tested half the dose of the one component and perhaps as low as 1/4 of the other component that go into these vaccines, but both the middle and high doses both had excellent immune responses, really good tolerability, and we acknowledge that we could move either of those 2 doses forward. I would say for competitive reasons, we have not said which of the 2, we would advance but there's no question that the higher dose generates higher antibody responses on a relative basis to the middle dose which would set a higher bar for any of those trying to catch up later on. So I guess at some level, we've tipped our hand a bit, but we haven't said definitively which one.

Have you conducted an end of Phase II meeting with the FDA?

We haven't guided to explicitly whether we have or haven't, and nor have we done that historically. What we've always done is encapsulate both the outcomes of the end of Phase II meeting the initiation of the phase -- of the following after those FDA interactions. So you should expect a similar pattern here.

Okay. So I guess presuming all goes as planned, take us through the forward cadence of events from here that are going to lead to commercialization. And I guess a second part to that question is, does seasonality matter as much as here as it would in, say, RSV or flu or COVID, right? In other words, is there a certain window that you need to hit in order to make a vaccine season?

Sure. Yes, I'm happy to address that in terms of the kind of the cadence from this point forward. So as we've talked about the expectation to start the pivotal noninferiority study, middle of this year, right? That is the most important, but only one of the several studies that will comprise the broader Phase III program. So we've guided to the expectation to start that study middle of this year and having the top line data from that study readout next year -- these are reasonably quick studies to conduct. And then the balance of the Phase III studies that comprise the Phase III program starting either this year or next year in 2026 and reading out in 2026 and 2027. So by 2027, all of the studies we expect will read out that comprise the Phase III program in total for VAX results. That's the basis for the package that we then submit to FDA via BLA and given the breakthrough therapy status having an accelerated review. And we haven't given guidance to launch time lines, but that would put us in a position to file the BLA by the end of 2027 and be approved in our market in 2028.

And I guess given that the adult population is going to be your first program to reach the market, just maybe talk through your commercialization strategy?

Sure. And let me quickly cover on the seasonality question and come back to the commercialization. So Grant can step in here. No, typically, seasonality is not a feature impacting either the ideal timing to conduct a clinical study or the outcomes from an immune response standpoint. I mean different serotypes circulated different rates around the country, so which is why we have a pretty diverse set of sites involved in the trial, but we haven't seen evidence of seasonality affecting either ability -- pace of enrollment or immune responses. With respect to the commercialization strategy, obviously, as we mentioned, adult would be the first indication in the market vis-a-vis the infant adult historically, as Grant outlined, has predominantly been a U.S. market that is beginning to change as other countries outside the U.S. adopt universal recommendations for their adult populations. Our intent is to commercialize independently, certainly in the United States, which is the overwhelming share of the revenue and even greater share of the profits to date. And given the features of this market, the role of ACIP among other things, the role of insurance. It really sets up well for a company even of our size to effectively commercialize on our own. With respect to our strategy outside the U.S., our base plan is to commercialize independently in the major markets. I think the opportunity for potential partnerships, commercial in nature, really come into play as we prepare for the -- in the indication because that is a global market, right? This vaccine is administered to babies born in most -- all of the developed and most all of the developing countries. And it's in that context where it would be unlikely for us to stand up our own commercial presence in some of the markets that comprise less of the overall revenue opportunity.

And then maybe just talking a little bit about the manufacturing side. I guess you guys have focused a lot on manufacturing readiness. So perhaps summarize your partnership with Lonza and how you're thinking about inventory build prelaunch? And why is that important?

Yes. One of the unique features in vaccine development is you do need to scale up and reach commercial scale much earlier in the development cycle for a product. So we have recognized that. Furthermore, it's very difficult to get the appropriate recommendation for usage post-licensure if you can't reassure the authorities that you can supply the vaccine at adequate scale to match the universe of folks that would be recommended for the vaccine. So for all of those reasons, it was critically important for us to get to an appropriate scale early in the development of our pneumococcal conjugate vaccines. We've had a long-standing, almost 10-year relationship with Lonza, where we scaled up the volume of production, the scale of production well in excess of what you would normally think of as clinical scale. And so we are at a commercial scale production in multi-use facilities at Lonza. We made an incremental investment to build out a dedicated manufacturing suite with Lonza that would be able to supply not only the domestic demand, but global demand not only adults, but also infants in light of the certainty that our Phase II data has generated thus far. So yes, we have a very fulsome plan that we've invested in with Lonza. The relationship with Lonza, while indeed, a partnership, we work very closely with them. It's a straight fee-for-service sort of arrangement. So we've not given up any downstream economics to solidify this core component of our strategy.

Okay. Let's shift to pediatrics. You had the first readout from VAX-24 in pediatrics and maybe just quickly frame the results and how they're different from what you were expecting.

Yes. I would say that despite the reaction in our stock price, the data most definitely was positive as per our initial impression. We have not wavered in our view that the data was positive since we put that data out 3 months ago. We got caught up in, obviously, a really terrible timing where we had guided to putting out the data by the end of the first quarter, which was March 30, Peter Marks resigned at the Friday prior aftermarket. So we really didn't have any flexibility to put our data out premarket on Monday, and then that was only counterbalanced by liberation day later that week. So the data itself, while not perfect, was very closely in line with what our expectations were. In this class, the expense of broader coverage has always come at the cost of some serotypes showing inferiority relative to older strains that trade-off has been acceptable because it's usually strains that aren't circulating, whereas you're picking up strains that are circulating. And so our findings were consistent with that. We saw a tolerability profile that looked right in league with what we see from the current standard of care. So it was decidedly derisking in this key population from a safety perspective. And from an immunogenicity perspective, we actually showed really good responses across the board. For the 4 incremental serotypes on top of Prevnar 20, those all look great, well in excess of the minimum threshold. For the 2 most highly circulating strains that were in common between the vaccines, we actually showed a dramatically higher immune response, in fact, twice the level of what we had seen from Prevnar 20. The 2 serotypes for which you have the most anxiety if you're a regulator looked phenomenal. For VAX-24, we did have some misses on the noninferiority comparisons, but they were on serotypes that we're not circulating at all or for one in particular, it was circulating at less than 1%. So overall, the data was quite positive, I think, quite derisking and furthermore, the other thing that we had identified, and keep in mind, this was a dose-finding study was that we do see a nice dose response on immunogenicity. And for those serotypes where we had missed we have an opportunity to increase the dose of those conjugates. We've shown in multiple clinical studies that the dose responsiveness works on our side. And in the meantime, we have already started our VAX-31 infant study, where we have higher doses being tested for those particular serotypes for which we'd like to see improved immune responses. So between the VAX-24 data that read out, which we believe was quite positive and the VAX-31 experiment that's already underway, in the context of a large Phase II study that started accruing last year. We feel very good about our prospects heading into the track for a pediatric vaccine. We would admit the profile wasn't as dominant in the adult segment. We showed dramatically better immune responses almost across the board. Here, we were closer on certain serotypes. But again, we think we can improve on dose in order to draw even or potentially improve beyond.

And on the on the VAX-31, what are you expecting to see in the Phase II readout?

Yes. So that study, as I mentioned, it's underway. It's going to enroll a similar number of infants to the study that read out earlier this year. So it will be around 800 infants, 200 subjects per cohort. We had to having the first of the 2 co-primary end points readout by midyear next year. And in terms of expectations, it's a bit early days, but I would say the real hook that pulls these broader spectrum vaccines through the system are the incremental conjugates that confer the improved coverage over standard of care, given how strong the incremental 4 were in the VAX-24 study that's read out. We have 7 more. So we have 11 new serotypes over and above the Prevnar 20 standard. Those we have very high confidence we'll read out in excess of the minimum threshold. So that is something we're feeling very good about. Furthermore, of the few misses that we had, we had already dosed those few serotypes up to the highest dose in the VAX-31 formulation. So we're feeling like we've already taken steps that we would have taken if we have the benefit of the VAX-24 data before starting the VAX-31 study. And so we're feeling really good about it going forward.

And I guess before we leave the topic, just for the Phase III then based on your learnings, how can you optimize for success?

For pediatrics?

Yes.

Yes. So we'll see this data next year. We have a band of even a slightly higher dose that we could take the conjugates to, if so warranted, based on the data. So that would be another lever that we would have at our disposal upon receipt of the Phase II data next year.

Right. And sponsors here afford the opportunity to make those changes within limits between Phase II and Phase III. So as Grant noted, we're already making changes that we think will produce a better outcome in Phase II for VAX-31 and based on those results, alongside the VAX-24 results, depending on which program we intend to advance into Phase III, if warranted, we could make further changes.

Okay. We have a question from the audience.

[indiscernible]

We can hear you. We can repeat it but we will summarize it.

This is maybe an industry-level question, which is that there are a number of stand-alone vaccine companies such as yourself that are either late clinical stage or commercial stage with small commercial footprint. At an industry level, does it maybe make sense for there to be some consolidation here or some sort of roll-up where these companies can sort of get together, get economies of scale save on cost and then investors could benefit potentially from a bigger E on the bottom line even if the multiple doesn't expand, could that potentially be an area of value creation for the vaccine players in the space?

No, I appreciate the question. I think our focus at this moment in time is to move into Phase III and advance down the clinical pathway, not only for the adult indication and later the infant indication. This is a substantial market opportunity, as Grant said, $8 billion today globally and growing a significant proportion of that is in the U.S. So we think the economics in this particular market are quite incredible. I think that certainly, from a bigger strategic context, they're certainly logic to that. I think the possible exploration of that, if it all relates to Vaxcyte, would be on the other side of exploiting this market opportunity in the U.S. as a later potential consideration.

Finishing up on PCV, and I know we're going to run over time, but I'm going to let this run for another couple of minutes given that we had some attrition. Just can you just talk about your third-generation VAX-XL? And when should we expect back to play a role?

Yes. So we did announce in March that we have a third-generation vaccine called VAX-XL. The situation is as follows: in this moment, VAX-31 in adults, it covers 95% to 98% of circulating disease. So there really isn't enough headroom to warrant a full-fledged rapid development of the third-gen product. But what will happen when our 31-valent vaccine is used, it will begin to take those trains out of circulation other streams will begin to fill the void, and there will be enough headroom to warrant an even broader spectrum vaccine. So VAX-XL is all about having a level of readiness for that headroom that would be created. So it begins by making incremental conjugates that can be combined with the 31-valent vaccine in ways that we don't think our competitors can keep up with. In fact, what's been said is using the conventional technology going beyond a 20 or 21-valent vaccine was the limit. So the fact that we've already gotten to a VAX-31, our belief is we can continue to stretch beyond that. And so we want to have a level of readiness as the epidemiology warrants it. And the fact that we have not seen carrier suppression, which is the historical governor that has limited the others to much lower numbers has not applied to our technology. So I think it's the right thing to do from a life cycle management perspective. And ultimately, I think it will be necessary, and we want to make sure we have the appropriate readiness.

And then maybe just to wrap up in the interest of time, I did want to talk a little bit about your earlier stage non-PCV pipeline program. So you've got the Group A Strep. You've got periodontitis and then Shigella. So which one of these do you see as the most exciting opportunity of the 3?

Yes. I mean, I think all 3 of them have good potential or we would not have invested in them as candidates. But I think of those 3, most definitely, the Group A Strep vaccine has the most high promise, the most unmet need and the highest probability of success. So that's obviously a nice combination. But to layer on to that, the reason the pneumococcal conjugate vaccine market is so large is it has real benefit for both infants for which we think of normally for most vaccines, but also for adults. So when you're able to have benefit across the full age range. Obviously, it gives you an opportunity to make and deliver more of your vaccine to more people. the Group A strep situation is very similar to that. There's a profound amount of disease that's generated in primary school children as they congregate. And likewise, there is a substantial amount of invasive disease caused by Group A Strep in adults and the prevention of bacterial infections has almost always come from conjugate vaccine approaches. And so this technology that we have that allows us to more nimbly combine these conjugates will give us a competitive advantage in Group A Strep as it has in the pneumococcal space. So yes, it's the intersection of a big unmet need, a competitive advantage, and we're very hopeful that, that will be a fast follower to our PCB franchise.

I might just add one thing. If you look at invasive pneumococcal disease, Group A Strep and Shigella, right, 3 diseases that are leading causes of use of antibiotics and contributing to this growing problem of antimicrobial resistance. So I believe vaccines can and should play an important role in limiting the use of antibiotics and addressing this threat that the United States and other countries have recognized as a real emerging challenge we face.

Very clear and a great place to stop. I think we managed to make up for the lost time as well. So thank you, Grant. Thank you, Andrew. Real pleasure talking to you and having you here with us.

Thanks for the call. Thank you.