Vaxcyte, Inc.

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 4/5

A clinical-stage vaccine innovation company engineering novel and improved vaccine candidates, primarily focused on infectious diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Vaxcyte, Inc. is a clinical-stage biotechnology company primarily focused on developing novel and improved vaccines for various infectious diseases.

Vaxcyte’s approach centers around a cell-free protein synthesis (CFS) platform, aiming to design vaccine candidates that are more effective, stable, and produce more durable immunity. The company’s current focus is on vaccines targeting some of the most serious and deadly bacteria, including Streptococcus pneumoniae (PCV), and is still quite early on in the clinical development lifecycle.

Business Overview

Vaxcyte does not have any product on the market or generating any profits as of now. Hence the financial results, mainly from cash balances and loss, stem only from R&D activities.

Vaxcyte is a preclinical stage company and has had no product sales till date.

The vaccine industry, particularly for infectious diseases like pneumococcal disease, is substantial, with a global market projected to be around $45 billion in 2027, excluding COVID-19 vaccines. Key players in this field include established pharmaceutical giants such as Pfizer, Merck, and GlaxoSmithKline. These large competitors have a proven track record of vaccine development, manufacturing, and distribution.

However, the market is also characterized by a continual demand for innovation as existing vaccines may not always completely prevent or treat diseases, and this is the niche that Vaxcyte is trying to fill.

Emerging infectious diseases and antibiotic resistance are driving demand for new vaccines with better efficacy, broader coverage and ability to prevent drug resistance.

Vaxcyte’s main competitors as detailed in the 2022 10-K are mainly Pfizer, Merck, GlaxoSmithKline, Sanofi, and Emergent. These companies have strong brand recognition, vast capital resources, and existing marketing and distribution capabilities. Vaxcyte primarily differentiates itself through its innovative approach in developing vaccines which allows it to develop improved versions of existing vaccines. They claim superior speed of manufacturing using their cell free platform. This claim is yet to be validated in a fully scaled production.

Financials

Vaxcyte is a clinical stage company and it doesn’t generate any profits. All revenue comes from other sources such as research grants, strategic collaboration and license agreement.

The company’s financial statements reflect its early stage in operations. Vaxcyte’s most recent financials in their Q3 2023 10-Q and annual reports are as follows:

  • Cash & Equivalents: As of September 30, 2023, Vaxcyte had $1,082.3 million in cash and cash equivalents. This a good amount of cash that will allow them to further their R&D.
  • Total Assets: Vaxcyte has $1,245.4 million in Total Assets.

  • Total Liabilities: Vaxcyte has total liabilities of $181.3 million.

  • Revenue: Revenue came to $0.9 million for the three months ended September 30, 2023 and $0.9 million for the same period in 2022.
  • Net Loss: The company reported a net loss of $104.9 million for the three months ended September 30, 2023, as compared to $119.2 million for the same period in 2022. This was mainly due to R&D expenses.
  • Operating Expenses: Operating expenses are also primarily R&D, which have been $111.0 million and $97.4 million for the three months of 2023 and 2022, respectively.

The financials of the company reflect its R&D-focused activities, with high expenses tied to clinical trials and research. The revenue streams are limited mostly to collaborations and research grants with no product sales.

The company’s financial results will only change significantly as and when the company generates product revenues. This is currently not expected in the near future, and therefore they should rely on cash reserves and any future funding rounds.

Moat Analysis

Vaxcyte has been rated as a 1 / 5 for its economic moat due to:

  • Intangible Assets: Vaxcyte is working on innovative technologies, but not yet established as a moat. The company does have a patent portfolio, but the commercial use of these technologies hasn’t been proven. Also, the success of their vaccines is largely dependent on regulatory approvals, which is difficult to predict with high certainty.
  • Switching Costs: Given the fact that they have no products, there are no switching costs involved.
  • Network Effects: Vaxcyte’s products do not exhibit network effects.
  • Cost Advantages: Vaxcyte doesn’t claim to have cost advantage, it claims it’s faster to manufacture using its platform, but it is not clear how efficiently the manufacturing process can be scaled up, or what kind of manufacturing costs it will incur. This will need validation in full scale production before they can be proven to be a moat. Also, these new facilities and methods will be subject to regulatory scrutiny.

Vaxcyte lacks a proven economic moat. The company relies on the success of innovative vaccine candidates, which is difficult to predict with any certainty.

Risks

The primary risks Vaxcyte faces include:

  • Clinical Trial Risks: Clinical trials are highly variable and require successful passage of each phase. There are no guarantees that trials will provide results as desired, and even when trials do generate positive results, regulators may choose not to provide approvals.
  • Regulatory Risks: Vaccine approvals are a heavily regulated process, and can face delays and scrutiny. Approval of Vaxcyte’s candidates by regulatory bodies such as FDA is essential to its commercial success.
  • Commercialization Risks: While Vaxcyte’s current trials are showing promising results, it remains to be seen whether it can scale up its production to a commercial level, as well as make its products attractive to the healthcare industry. They do not have any of their own marketing and distribution partners and might face a challenge when trying to convince insurers, healthcare officials and governments about the value of their vaccines.
  • Financial Risks: The company will continue to incur heavy losses during its R&D operations. The company may also need to go for more funding rounds in the future, which may dilute shareholder value.
  • Competition: Big pharmaceutical firms can easily use their existing resources and scale to dominate a market if the products are proven to work.
  • Technology Risk: There is also a risk of other, superior technologies coming to the market from different companies, rendering Vaxcyte’s technologies obsolete.

Business Resilience

Vaxcyte’s resilience is untested as of now, given they are in clinical trials and have had no commercial sales. It is also dependent on management’s ability to guide the company through the volatile biotechnology space and obtain necessary funding for its R&D efforts. In case the company fails to pass its clinical trials, it is unlikely it will be able to generate sales to compensate.

Understandability

The business has been given an understandability rating of 3 / 5, as it’s R&D focused efforts make it a little difficult to assess. The potential of innovative vaccines is clear. The science behind its approach and the complexities of clinical trials and drug development make it moderately complicated to understand.

Balance Sheet Health

Vaxcyte’s balance sheet health is rated at 4/5, given it currently has large amounts of cash which can sustain its R&D efforts in the near future. They do not have high debt which makes it more stable and low risk.