Vaxcyte, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. Vaxcyte is a clinical-stage vaccine developer with no approved products and no product-sales revenue.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue from product sales | None | None | Not applicable |
| Research and development expense | $72.7 million | $38.5 million | Up 89.0% |
| General and administrative expense | $14.5 million | $9.4 million | Up 53.5% |
| Total operating expenses | $87.1 million | $47.9 million | Up 82.0% |
| Operating loss | $87.1 million | $47.9 million | Loss increased |
| Net loss | $68.3 million | $48.5 million | Loss increased 40.8% |
| Net loss per share, basic and diluted | $0.70 | $0.80 | Loss per share narrowed |
Higher interest income, reflecting larger cash and investment balances and higher yields, helped offset higher operating expenses. Q2 interest income was $16.5 million versus $0.4 million; grant income was $2.5 million versus $0.7 million. No operating margin is meaningful because the company has no product revenue.
For the first six months, operating expenses were $158.3 million (up 81.8%) and net loss was $128.8 million (versus $87.5 million in 2022). Research and development expense rose 86.4%, mainly from VAX-24 Phase 3 readiness, VAX-A1 research, planned VAX-31 IND work, manufacturing, and increased personnel costs. Stock-based compensation was $22.2 million for the half year, compared with $10.0 million.
At June 30, cash and cash equivalents were $531.0 million and investments were $909.8 million, totaling $1.441 billion. Current assets were $1.310 billion and current liabilities $60.2 million. Total liabilities were $69.4 million, including operating lease liabilities; the company reported no debt. Accumulated deficit was $650.9 million.
Six-month operating cash use was $110.4 million, compared with $66.8 million a year earlier. Investing activities used $781.7 million, primarily reflecting purchases of investments; financing provided $588.5 million, chiefly net proceeds from the April 2023 offering. Management believes cash, cash equivalents and investments will fund operating expenses and capital expenditure requirements for at least 12 months from the filing date.
Material changes and business developments
- On April 21, 2023, Vaxcyte completed a follow-on offering, receiving $545.3 million net. The offering included 13.03 million common shares and pre-funded warrants for 1.0 million shares. Issued and outstanding common shares increased to 93.8 million at June 30, from 79.5 million at year-end 2022.
- VAX-24 adult Phase 2 results, announced in April, showed robust immune responses across 24 serotypes; pooled analyses reported non-inferiority to PCV20 for 20 shared serotypes and superiority for four additional serotypes. Six-month safety and tolerability were reported as similar to PCV20. These are clinical-stage findings, not evidence of approval or commercial efficacy.
- The VAX-24 infant Phase 2 study advanced to its final stage in July 2023 after safety review. The comparator was changed to PCV20. Topline data from the primary three-dose series are expected by 2025, with booster data about nine months later.
- VAX-GI Shigella preclinical findings were published, and NIH awards provide up to $7.2 million in total potential funding for related research. Vaxcyte also reported up to $14.6 million in potential future CARB-X funding for VAX-A1, subject to milestones.
Outlook, risks and contingencies
- Management expects adult VAX-24 Phase 3 topline safety, tolerability and immunogenicity data in 2025, following anticipated FDA End-of-Phase 2 discussions in Q4 2023. FDA discussions on CMC strategy under Breakthrough Therapy designation are expected through Q1 2024.
- The company anticipated submitting a VAX-31 adult IND and expected FDA clearance in Q4 2023 following submission; Phase 1/2 adult data were expected in 2024. These are forward-looking expectations, not reported outcomes.
- Vaxcyte expects expenses and capital expenditures to rise as it advances trials, scales manufacturing, prepares for potential VAX-24 commercialization, and builds its organization. It will require substantial additional funding to complete development and commercialization, despite the stated near-term runway.
- Manufacturing is a significant execution risk: Vaxcyte has no internal manufacturing capability, relies heavily on Lonza and other external suppliers, and reports single-source dependencies. Prior process adjustments, scheduling conflicts and capacity constraints at Lonza delayed VAX-24 manufacturing.
- Non-cancelable commitments to key manufacturing partners totaled $152.1 million at June 30, including $82.6 million for the remainder of 2023 and $67.1 million for 2024. The company also had $15.2 million of lease liabilities.
- A $5.0 million Sutro payment remained accrued pending agreement on definitive terms. Exercising the Sutro option would require $75.0 million in cash, with up to $60.0 million in additional regulatory milestone payments.
- Key development risks include trial failure or delay, FDA disagreement with reliance on immune surrogate endpoints instead of field-efficacy studies, safety findings, manufacturing scale-up and supply disruption, competition, and additional financing or dilution. Inflation and interest-rate changes may affect costs and financing conditions.
- Vaxcyte reported no pending legal matter it believed could materially adversely affect its financial condition or results. Management concluded disclosure controls were effective as of June 30, 2023.
Most important facts for investors to verify
- Progress and final data from VAX-24 adult and infant studies, and whether the FDA accepts the proposed adult Phase 3 design and surrogate endpoints.
- Whether VAX-31 IND submission and anticipated FDA clearance, and its 2024 trial-data timeline, were achieved.
- Manufacturing readiness, Lonza capacity and performance, and development of alternative suppliers, especially given the $152.1 million commitment balance.
- Actual cash burn and changes in the estimated runway as clinical and manufacturing spending increases; runway stated by management is not a guarantee.
- Further share issuance under the ATM or other financing, outstanding pre-funded warrants, and resulting dilution.
- Final terms and any exercise of the Sutro option, including the potential $75.0 million exercise price and up to $60.0 million in milestones.