Vaxcyte, Inc. (NASDAQ:PCVX) Q4 2022 Earnings Call Transcript

Vaxcyte, Inc. (NASDAQ:PCVX) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vaxcyte Fourth Quarter and Full Year 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I now would like to turn the call over to Andrew Guggenhime, President and Chief Financial Officer of Vaxcyte. Please go ahead, sir.

Andrew Guggenhime: Thank you, operator and good afternoon, everyone. I’d like to welcome you to Vaxcyte’s earnings conference call to discuss our 2022 results and to provide a business update. I am joined today by our Chief Executive Officer, Grant Pickering; our EVP and Chief Operating Officer, Jim Wassil; and our VP of Research, Jeff Fairman. Earlier this afternoon, we issued a news release announcing our results. Copies of this and our other news releases, latest corporate presentation and SEC filings can be found in the Investors and Media section of our website. Before we begin, I’d like to remind you that during this call, we’ll be making certain forward-looking statements about Vaxcyte, which are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those referred to in any forward-looking statements.

For a discussion of the risks and uncertainties associated with these statements, please see our press release issued today as well as our most recent filings with the SEC, including the risk factors set forth in our Form 10-K for the year ended December 31, 2022, and any subsequent reports filed with the SEC. With that, I’ll turn the call over to Grant Pickering. Grant?

Grant Pickering: Thank you, Andrew and to all of you on the call and webcast, thanks for joining us today. 2022 is a landmark year for Vaxcyte. We reported positive and unprecedented proof-of-concept top line clinical data for VAX-24, our lead pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease in adults. These remarkable data validate our PCV franchise and our carrier-sparing approach for broad-spectrum PCVs as well as our cell-free platform. They also represent the culmination of nearly a decade of thoughtful and methodical research and development by the entire Vaxcyte team and our partners. The findings of the large Phase 2 study in adults 18 to 64 years of age indicate a potential best-in-class profile for VAX-24 and demonstrate how our novel cell-free technology platform has the capability to overcome the limitations of other conventional approaches.

These results and the foundation we have carefully created have us well-positioned to advance our PCV franchise to potentially disrupt what has consistently been a crucial vaccine class, societally and financially. I’m incredibly proud of the progress this past year, and I’m optimistic about our ability to execute and further scale our business in 2023 and beyond. As we look ahead, we remain focused on advancing both of our PCV franchise programs, VAX-24 and VAX-31, which we previously referred to as VAX-XP, with several upcoming milestones. VAX-24, our lead PCV candidate, was recently granted Breakthrough Therapy designation for adults, adding to its fast-track designation, and we remain on track to deliver top line safety, tolerability and immunogenicity results in subjects 65 and older in the second quarter of this year.

As we’ve discussed with many of you, for this pending readout, our focus from an immunogenicity perspective is almost exclusively on the point estimates for the OPA geometric mean ratios, or GMRs, and their comparability to the prior results in our much larger Phase 2 study in younger adults. Given the smaller size of this older adult trial at 50 subjects per cohort, these point estimate GMRs are the most important focal point and not the lower bounds of the confidence intervals. This study was not powered to meet the regulatory non-inferiority standard, and as a result, these confidence intervals will be substantially wider. The combined data from both adult Phase 2 studies will enable us to perform the statistical powering necessary to our pivotal Phase 3 non-superiority study for VAX-24 in adults.

These data, along with the full six-month safety data from both studies, will facilitate our end of Phase 2 meeting with FDA, which we expect to hold in the second half of this year. To put the U.S. adult PCV market opportunity in the context, today it is approximately $2 billion of the $7 billion total annual global market and is expected to be the fastest growing segment of the market going forward. Key growth drivers, including increase in adult vaccination rates outside the U.S., and in the U.S., the potential shift to universal adult vaccination starting at age 50 instead of age 65, which itself would expand the market and open up the adult regimen to a prime blue schedule, as is the case in the input market. The infant cohort represents the largest portion of the global pneumococcal vaccine market with approximately $5 billion in annual sales, and we are thrilled to be launching our first clinical program in infants in the second quarter of this year.

This follows FDA clearance of our IND application, which we announced last week. Bringing the broadest PCV to both infants and adults represents an opportunity to significantly reduce invasive disease across the entire population. To maintain a long-term leadership position in this market, and to address the serotype replacement phenomenon that we would expect, based on the widespread use of the 24-valent PCV, we continue to invest in our 31-valent VAX-31 program. Similar to VAX-24, we believe our unique carrier-sparing PCV approach gives us the opportunity to expand the spectrum of coverage to address additional pathogenic serotypes without compromising the ability to continue to vaccinate against previously circulating strains. This is critical since previously controlled strains have rebounded in prior instances where vaccine coverage was withdrawn.

This puts Vaxcyte in a different position than other sponsors who are applying the conventional PCV approach and are forced to make sacrifices in an attempt to cover newly circulating strains. We have continued to make significant investments in the advancement of VAX-31 and expect to submit the adult IND for this program in the second half of this year and deliver top line data next year. Beyond our PCV franchise, we continue to progress and bolster our early-stage pipeline of novel vaccines, including VAX-31, a conjugate vaccine candidate designed to prevent infections in both adults and children caused by Group A Strep bacteria, and VAX-PG, which is designed to treat periodontal disease. We are also introducing a new program called VAX-GI, a vaccine designed to prevent Shigella, a danger bacterial infection with significant totality rates among infants in low and middle income settings.

Jeff will provide additional details on our earlier-stage programs later on today’s call. Given the magnitude of the opportunity for our PCV franchise, we continue to invest to further solidify our manufacturing foundation. Our strategic relationship with Lonza remains strong, and we believe we are well positioned to support a potential adult VAX-24 launch in the U.S. market out of existing Lonza facilities. Plans to ensure and expanded commercial manufacturing footprint to support the infant indication in an ex-U.S. markets are underway. Additionally, we further fortified our extract supply chain via our recent expanded agreement with Sutro Biopharma. From a financial perspective, we are in a strong position with over $950 million on the balance sheet as of December 31, aided by two successful follow-on financing last year totaling $805 million in gross proceeds.

This financial strength provides us the capital to fund through several important incremental milestones, which Andrew will highlight later. I’ll now turn it over to Jim, who will provide more details on our PCV programs. Jim?

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Jim Wassil: Thanks Grant. I’d like to start by reiterating why developing broader coverage vaccines to treat pneumococcal disease matters. Despite widespread administration of effective vaccines, the global impact of disease remains significant and is associated with high case fatality rates, antibiotic resistance and meningitis. In the U.S. alone, adult and the pediatric pneumococcal vaccines only cover approximately 60% and 41%, respectively, of circulating disease. As a result, the public health community continues to affirm the need for broader spectrum vaccines to prevent invasive disease or IPD. We designed VAX-24 to deliver a PCV that includes all of the serotypes covered by the currently marketed vaccines. As confirmed by our strong clinical results from the Phase 1/2 proof-of-concept study, VAX-24 has the potential to provide an additional 10% to 28% of protection for adults compared with the standard-of-care PCVs. In this study, VAX-24 met the approval non-inferiority threshold for all 24 serotypes and exceeded the immune response of PCV20 for 16 of the common 20 serotypes.

Four of those demonstrated statistically superior responses. Based on these results, we believe we have the opportunity to set a new bar for the pneumococcal vaccine by delivering broader coverage and higher immune responses relative to the conventional PCV. Looking ahead, we expect top line data for our second Phase 2 study in adults 65 and older in the second quarter of this year. With the upcoming second quarter data readout, I want to provide a bit more context about our objectives and the expectations for this study. As a reminder, the study design is identical to the first Phase 2 study, but for the age and the number of subjects at 50 subjects per cohort versus nearly 200 in the first Phase 2 study. This smaller study was designed to further inform the powering of the pivotal Phase 3 study, while adding to the body of research for VAX-24.

As Grant mentioned, it was not powered to demonstrate non-inferiority. So, it is most important to focus on the point estimates for the OPA-geometric mean ratios for each of the serotypes rather than the confidence interval. That’s because you can expect these to be wider and it’s very possible that several may cross the 0.5 non-inferiority threshold. Yet if the GMRs are between 0.6 to 0.75 or higher for each serotype prior Phase 3 studies have shown that these ratios are adequate to achieve the non-inferior threshold. We can read some useful insights when looking at the results of the age stratification analysis of the first Phase 2 study as seen on slide 12. The graph to the left reflects the data we shared in October of last year from the full study population, in which the confidence intervals for the OPA GMRs were relatively narrow.

The two additional forest plots show the eight stratified OPA GMRs. In the 16 to 64-year-old cohort, shown on the far right of this slide, we had approximately 50 subjects. The results show a general improvement in the point estimates, which is encouraging and as expected, a significant widening of the conference intervals due to the smaller sample size. These confidence intervals are relevant because we enrolled approximately the same number of subjects per cohort in the 65 and older study. When we announced our top line data from the older adult study, given precedent Phase 3 programs have enrolled subjects both older and younger than 65. We also plan to share pooled data that includes the results from the 60 to 64-year old cohort in our prior study.

Based on well-established development pathways, we anticipate the Phase 3 study design will include the same validated surrogate immune endpoints that have served as the basis for full approval of multiple prior PCVs. These were also the basis for our positive Phase 2 study. We expect top line data from that pivotal Phase 3 non-inferiority study in 2025, and we will keep you apprised of other milestones following the planned regulatory interactions in the second half of this year. As a result program advances, we are also excited to move into the infant population with VAX-24 and plan to initiate a Phase 2 study in the second quarter of this year. This study, outlined on slide 13, includes three doses given the healthy infants in the first six months of life.

This is referred to as the primary series. Primary series is followed by a dose administered at 12 to 15 months of age, which is referred to as the booster dose. This study will be conducted in two stages, and we will compare VAX-24 to the broadest standard-of-care PCV, which today is PCV-15. The stage one portion of the study will evaluate the safety and tolerability of a single injection of VAX-24 at three-dose levels compared to PCV15 in approximately 48 infants at two months of age in a dose escalation manner. Participants will be randomized on a 3:1 basis and will be evaluated for safety at seven days after dosing. A data safety monitoring committee will evaluate these data, to which we will remain blinded before making a go/no-go decision to enable us to proceed to a higher dose and ultimately to the second stage of the study.

The second stage of the study is significantly larger and will enroll approximately 750 healthy infants. We will evaluate safety, tolerability and immunogenicity for the same three doses of VAX-24 when compared to PCV15. Participants will be randomized equally into four separate arms, with serology drawn for immunogenicity evaluations at seven months and before and after the booster dose. The key pre-specified immunogenicity study endpoints will follow convention, which includes an assessment of the percent of participants with IgG titers above predefined levels after the primary series and the IgG geometric mean concentrations after the booster dose, both of which will be compared to PCV15 for the common serotypes. We expect top line data from this study following the primary three-dose immunization series by 2025, with the top line data from the booster dose to come later.

As Grant noted, we also continue to advance VAX-31, our 31-valent PCV candidate designed to provide coverage of approximately 95% of the IPD currently circulating in the U.S. adult population. We’ve now identified the additional seven serotypes included in VAX-31 beyond the 24 serotypes in the VAX-24 and believe this breadth of coverage goes beyond any other PCV in development. We are completing IND-enabling activities and intend to submit the adult IND in the second half of this year. With that, I’ll turn it over to Jeff to provide an update on our early-stage program. Jeff?

Jeff Fairman: Thanks Jim. In addition to our PCV franchise, we also have a robust earlier stage pipeline for which we continue to leverage our cell-free platform. VAX-A1, our novel conjugate vaccine designed to prevent infections caused by Group A Strep, remains highly relevant given the recent outbreaks that have captured news headlines. Group A Strep is one of the leading infectious disease-related causes of death and disability worldwide and is a significant contributor to the prescription of antibiotic in the very young. IND-enabling activities continue as VAX-A1 advances to the clinic. These include analytical assay method development, immunological assays and scaling up the processes towards the production of GMP grade drug substance and drug product.

We will give updates as to the anticipated timing of the IND submission as the program advances. I’m also pleased to share that we have achieved our goal last year to name a final candidate for VAX-PG, our therapeutic vaccine candidate designed to treat periodontal disease. Periodontal disease impacts approximately 65 million adults in the U.S., resulting in productivity losses that are estimated at more than $50 billion per year. As we await the readout of our final preclinical studies, we have begun the scale up of the production of our candidate vaccine proteins, analytical assay development and clinical serology assay development necessary support eventual early-stage clinical studies. VAX-PG leverages a key application of our cell-free platform, which is the ability to make tough to make protein antigens.

This also has a bearing on the nomination of our new vaccine program, VAX-GI. VAX-GI is designed to prevent dysenteriae caused by Shigella bacteria, which is commonly referred to as shigellosis. Shigellosis is a bacterial illness with no available prefinitive treatment. It affects an estimated 188 million people worldwide each year and results in approximately 164,000 deaths annually, mostly among children under five years of age in low and middle income areas. With the aim of reducing morbidity and mortality due to this disease, the WHO lists Shigella vaccine development as a priority goal. More information can be seen on slide 17. The central antigen in VAX-GI is IpaB. While this is a well-appreciated antigens, others have been unable to produce IpaB at an amount sufficient to enable a commercial product.

Yet with our cell-free technology, we believe we can produce this antigen at substantially improved yields, allowing for commercial scale production. More information on this unique application of the cell-free technology is available in the Publication section of our website. We look forward to sharing more updates on our earlier-stage pipeline as the year progresses. I would now like to turn the call over to Andrew, who will provide a financial update.

Andrew Guggenhime: Thanks Jeff. I’ll briefly cover a few financial points, before turning it over to Grant for our closing remarks. With respect to the income statement, the details of our fourth quarter and year-end 2022 results and the reasons for the variances to the comparable 2021 periods are reflected in our 10-K filing and summarized in our press release. The year-over-year increase in R&D expenses was due primarily to higher manufacturing and clinical development expenses for VAX-24 as we invested to prepare for the planned Phase 3 clinical trials and initiated and completed enrollment in two Phase 2 clinical studies; higher manufacturing expenses for VAX31, as we advance that program toward our anticipated IND application submission; and increased personnel related costs in our R&D organization to support these key initiatives.

The increase in G&A expenses was driven principally by higher personnel related and corporate costs as we invested in our team and infrastructure to support our overall growth. I will note the $23 million charge we incurred in the fourth quarter related to the agreement we entered into with Sutro Biopharma during that period. This amount reflects the upfront cash and stock consideration for the expanded rights we acquired and the option we have to acquire additional rights. The entire upfront consideration was expensed in the fourth quarter. As we look forward, we expect a substantial increase in 2023 expenses over full year and Q4 2022 annualized levels, excluding the $23 million Sutro charge, particularly in R&D. The expected significant increase in R&D expenses is primarily a function of our investment to make the required clinical trial materials for our planned VAX-24 Phase 3 program, which will consist of multiple trials and to a much lesser degree, expenses related to executing our VAX-24 infant Phase 2 study, preparing for our planned VAX-31 adult Phase 1/2 study, activities to support a future BLA for VAX-24 and an increase in employee headcount to support our anticipated growth.

Turning to the balance sheet and cash runway. As Grant noted, we continued to maintain a strong financial position, ending 2022 with $957.9 million in cash, cash equivalents and investments. Going forward, we expect that our balance sheet will be sufficient to fund our operating expenses and capital expenditure requirements through a number of important milestones over the next few years, including the top line pivotal VAX-24 Phase 3 non-inferiority study in adults, for which data is expected in 2025. As we’ve noted before, our cash runway outlook does not reflect the potential costs associated with securing additional manufacturing capacity to support for certain components of our vaccine, expected increased commercial quantities upon the potential approval and launch of VAX-24 in the infant population and to expand into other markets outside of the United States.

We continue to evaluate our alternatives to bring on such additional capacity. I will now turn it over to Grant for closing remarks.

Grant Pickering: Thanks Andrew. It was an extraordinary year of validation for VAX-24 in our pipeline and we are in a position to maintain our strong momentum in 2023. We expect this to be a milestone rich year across our pipeline with a focus on VAX-24 and VAX-31. We look forward to sharing further updates as the year progresses and appreciate your interest by joining us today. With that, let’s take some questions. Operator?

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Q&A Session

Operator: Thank you. Our first question will be coming from Jason Gerberry of Bank of America. Your line is open.

Jason Gerberry: Hey, guys. Thanks for taking my questions. My first question is just as you move VAX-24 into peds, just your thoughts on the biggest risk, the translatability of vaccine efficacy going to the pediatric population with a higher valence product. And then my second question, just wanted to get your thoughts regarding the recent ACIP panel and this discussion on Pfizer’s PCV20 in peds. And if the FDA ultimately agrees with Pfizer’s view on totality of data and coverage at the fourth dose, might that in any way alter how you’re thinking about pediatric development of VAX-24? Thanks.

Grant Pickering: Yeah. Hey, Jason. Thanks for the question. There’s been a long history of PCV development initially beginning in peds and then graduating to adults and then more recently, starting in adults and then going into peds. And there’s been remarkable consistency using the same formulation whether it was Prevnar or Merck’s version Vaxneuvance, where they were able to take the exact same dose and same formulation in both infants and adults. Obviously, a different number of doses more being administered to kids. But there’s been very good translatability across the age groups historically. But I think what we have seen, shown consistently is bigger drop as expanded valence PCVs had gone from adults down to kids. And as you referenced, that was the subject of the discussion at last week’s ACIP meeting, where the conclusion of the working group was, on the one hand, we have the improved coverage of PCV20.

But on the other hand, you have higher immune responses with the 15-valent for Merck. So that’s the trade-off that’s being required with the conventional technology, and that’s what has us so excited about the data that we generated last fall where VAX-24 was able to show broader coverage, but in fact better immune responses against the common strains of the less valent vaccine. So that’s the existential choice that they’re being forced to make. And the working group basically didn’t really indicate how they are going to act, but that’s the trade-off that they’re going to have to consider if the April PDUFA date comes and the FDA approves Prevnar 20.

Jason Gerberry: Got it. Thanks guys.

Grant Pickering: Sure.

Operator: Thank you. One moment while we prepare for the next question. Our next question is coming from Roger Song of Jefferies. Your line is open.

Roger Song: Great. Congrats for the Q and thanks for taking the question. Maybe just a quick two question related to the statistics. So, for the upcoming Phase 2 data readouts, understanding you want to focus on the point estimate, given the smaller size, but maybe can help us to conceptualize what is the level of point estimate you need to hit in order to have a reasonable chance in the Phase 3 to hit a non-inferiority, for that’s number one. Number two is in terms of the sample size for Phase 3, seems you are targeting around 1,000 patients. How should we think about with different data scenario in terms of the non-inferior versus the superior for some serotypes? Thanks.

Grant Pickering: Yeah. Hey, Roger. Thanks for the question. Yeah. As Jim was touching on in the prepared remarks, what we’ve seen consistently in the historical Phase 3 studies for the adult space is that you can have as low as a 0.6 point estimate on a relative basis for your vaccine versus the standard-of-care, which would be Prevnar 20. And that has been — about the minimum amount you need to show to make room for the point — for the confidence intervals on either side. So, yeah, as we’re approaching that 65-plus readout, those are the sort of point estimates we’ll be looking to exceed. And as we saw from the larger study that we read out in the fall, we are well in excess of those. So, we’re feeling reassured as we did the pre-specified stratification, and we’re able to look at the 60 and 64-year old age cohort.