Vaxcyte, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited interim financial statements. Vaxcyte is a preclinical vaccine developer with no approved products and no product-sale revenue. Its lead candidate, VAX-24, is a 24-valent pneumococcal conjugate vaccine.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue from product sales | None | None | None | None |
| Research and development expense | $16.4 million | $9.6 million | $58.9 million | $32.2 million |
| General and administrative expense | $4.9 million | $2.5 million | $11.2 million | $6.1 million |
| Net loss | $21.0 million | $11.3 million | $68.5 million | $35.7 million |
| Net loss per share, basic and diluted | $0.41 | $2.93 | $3.06 | $9.54 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $35.9 million | $32.7 million |
At September 30, cash and cash equivalents were $397.0 million, including $392.3 million in money market funds; current assets were $400.8 million and current liabilities $39.6 million. Accumulated deficit was $177.8 million. No material debt was reported; capital lease liabilities had been paid off, with no future capital-lease payments due. Gross margin is not applicable because the company had no product sales.
Financing in the first nine months included $264.0 million of net IPO proceeds and $109.9 million from Series D preferred stock. The IPO and preferred-stock conversion substantially increased common shares outstanding; preferred shares were fully converted at the IPO.
Changes versus comparable periods
- Q3 operating expenses rose 75.5% year over year, and net loss increased 85.7%. For the first nine months, operating expenses rose 83.0% and net loss increased 92.1%.
- R&D growth was chiefly driven by VAX-24 manufacturing and outsourced development work preparing for GMP production and planned clinical testing. G&A increased with staffing, stock-based compensation, public-company costs, insurance, and patent-related legal work.
- Operating cash use increased to $35.9 million from $32.7 million for the nine-month period. The 2020 cash balance was substantially bolstered by the IPO and Series D financing.
- CARB-X grant income increased to $2.2 million for the nine months from $54,000, partly offsetting expenses. The grant is reimbursement for qualifying Group A Strep research costs, not product revenue.
Outlook, commentary, and risks
- Management expected to submit an IND and begin a VAX-24 Phase 1/2 study in the second half of 2021, with topline data expected in 2022. It said existing cash was expected to fund operations and capital needs through at least completion and announcement of that study’s topline data; additional capital would be needed before pivotal trials.
- Management reported progress on VAX-24 manufacturing, including GMP campaigns for antigens and conjugate drug substances. Expenses are expected to increase as development, manufacturing, clinical work, hiring, and public-company activities expand.
- Key execution risks include the preclinical stage of all candidates, uncertain human safety and efficacy, possible FDA requests for field-efficacy or additional studies, and reliance on third parties. Sutro Biopharma is the sole source of critical raw materials and Lonza performs most manufacturing; disruption or delay could affect timelines and costs.
- COVID-19 had not significantly affected development timelines as of the filing, but management warned of potential disruption to operations, suppliers, clinical work, financing access, and markets.
- Other notable exposures include Swiss franc currency risk and no formal hedging program. Q3 included $0.5 million of foreign-currency transaction losses. Accrued manufacturing expenses were $24.5 million at quarter-end; Lonza completion payments had been deferred until April 2021 by oral agreement.
- CARB-X increased reimbursement on initial-period eligible expenses from 50% to 90%, raising committed initial funding from $1.6 million to $2.7 million. Further potential funding depends on CARB-X exercising options and milestone progress.
- Management reported disclosure controls were effective as of September 30, 2020, with no material change in internal control over financial reporting during the quarter. It reported no material pending legal matter known to management.
Important facts for investors to verify
- Whether VAX-24 manufacturing, IND-enabling work, and the planned 2021 Phase 1/2 start remain on schedule, and whether the 2022 topline-data target is achievable.
- Whether cash, burn rate, and accrued manufacturing obligations support the stated runway, including the timing of deferred Lonza payments and the need for funding before pivotal trials.
- Whether dependence on Sutro Biopharma and Lonza can be managed, including supply continuity, manufacturing quality, and any second-source plans.
- Whether regulators accept the proposed immune-response endpoints without field-efficacy studies, and how additional study requirements could affect cost and timing.
- How much CARB-X funding is ultimately realized, given reimbursement conditions, milestones, and extension options.