Vaxcyte, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Financial statements are unaudited. Vaxcyte is a preclinical vaccine developer and has generated no product revenue.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $18.2m | $10.0m | $42.5m | $22.6m |
| General and administrative expense | $3.0m | $2.3m | $6.3m | $3.6m |
| Net loss | $20.3m | $10.7m | $47.5m | $24.3m |
| Net loss per share, basic and diluted | $1.72 | $2.90 | $5.99 | $6.62 |
Operating losses increased as development and manufacturing activity expanded. R&D represented the majority of operating expenses; margins are not meaningful because the company had no revenue. Q2 other income included $1.0m of CARB-X grant income. The six-month total was $1.4m; grant income is recorded in other income, not revenue.
At June 30, cash and cash equivalents were $410.0m, total assets $416.2m, total liabilities $33.0m, and stockholders’ equity $383.2m. Accumulated deficit was $156.8m. The company reported no outstanding debt or capital-lease liability; future operating lease payments totaled $0.9m. Cash and cash equivalents included $403.1m in money market funds.
For the first half, operating cash outflow was $22.8m, investing outflow $0.4m, and financing inflow $374.3m. Financing chiefly comprised $264.1m net IPO proceeds and $109.9m from Series D preferred stock. Operating cash use was slightly below the prior-year $23.3m, despite the larger net loss, partly because accrued manufacturing expenses increased $20.5m.
Material changes and notable items
- Q2 net loss rose 90.5% year over year; first-half net loss rose 95.0%. First-half R&D expense increased 88.1%, mainly from outsourced manufacturing and research services for VAX-24.
- June’s IPO raised $287.5m gross and approximately $264.1m net. In March, the company had raised $110.0m gross through Series D preferred stock. At the IPO, all preferred shares converted into common stock; common shares outstanding were 50.9m at June 30.
- Accrued manufacturing expenses increased to $26.3m from $5.8m at year-end 2019, a significant working-capital movement associated with outsourced manufacturing.
- The company changed its name from SutroVax, Inc. to Vaxcyte, Inc. in May 2020 and effected a one-for-1.6870 reverse stock split in June.
Outlook, management commentary, and risks
- Management expects to submit an IND for lead candidate VAX-24 and begin a Phase 1/2 study in the second half of 2021, with topline data expected in 2022. It stated that available cash should fund operations through at least those topline results and advancement of other candidates; additional capital will be needed before pivotal trials.
- VAX-24 manufacturing milestones included release of GMP eCRM carrier batches, completion of GMP polysaccharide-antigen batches, and initiation of conjugate drug-substance batches.
- In July 2020, CARB-X amended VAX-A1 funding terms: reimbursement for the initial period increased from 50% to 90%, raising the initial funding amount from $1.6m to $2.7m. Potential total funding over four years could exceed the original $15.1m if extension options are exercised; this is not assured.
- COVID-19 had not significantly affected development timelines as of the filing, but management warned of possible disruption to research, manufacturing, clinical development, regulatory interactions, and access to capital.
- Vaxcyte relies on Sutro Biopharma for critical raw materials and Lonza for most manufacturing, without internal manufacturing capacity. These supplier dependencies could delay programs or increase costs. Sutro is also a related party; the license includes royalties on future product sales.
- Regulatory approval, including whether PCV candidates can rely on immune-response surrogate endpoints rather than field-efficacy trials, is uncertain. Other material risks include preclinical-stage failure, manufacturing scale-up and quality requirements, competition, financing needs, and intellectual-property challenges.
Key facts for investors to verify
- Whether VAX-24 manufacturing and IND-enabling work remain on track for the stated 2021 clinical-start target, and whether regulators accept the proposed trial endpoints.
- Cash runway assumptions and the timing, size, and terms of any financing needed before pivotal trials.
- Accrued manufacturing costs, payment timing under the Lonza agreements, and any cancellation or milestone obligations not quantified in the filing.
- Continuity and capacity of single-source suppliers, and any actual COVID-19 effects on operations or timelines.
- Terms and availability of future CARB-X funding, which depend on eligible expenses and possible extension decisions.