VAXCYTE, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission , or theSEC , onMarch 29, 2021 . This discussion and analysis contains forward-looking statements based upon our current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and beliefs. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. You should carefully read the "Risk Factors" section of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled "Special Note Regarding Forward-Looking Statements."
Overview
We are a next-generation vaccine company seeking to improve global health by developing superior and novel vaccines designed to prevent or treat some of the most common and deadly infectious diseases worldwide. Our cell-free protein synthesis platform enables us to design and produce protein carriers and antigens, the critical building blocks of vaccines, in ways that we believe conventional vaccine technologies currently cannot. Our pipeline includes pneumococcal conjugate vaccine, or PCV, candidates that we believe are among the most broad-spectrum PCV candidates currently in development, targeting the$7 billion global pneumococcal vaccine market. Our lead vaccine candidate is VAX-24, a 24-valent investigational PCV. We anticipate submitting our initial investigational new drug, or IND, application to theU.S. Food and Drug Administration , or FDA, for VAX-24 in the first quarter of 2022, following the anticipated completion of the remaining drug product testing and release, as well as documentation of stability, and initiating our Phase 1/2 clinical proof-of-concept study in adults thereafter. We expect to announce topline data from this study between late 2022 and early 2023. Our second PCV candidate, known as VAX-XP, leverages our scalable and modular platform and builds on the technical proof of concept established by VAX-24 and, if approved, would expand the breadth of coverage to at least 30 strains without compromising immunogenicity due to carrier suppression. In addition to our PCV franchise, we are developing VAX-A1, a novel conjugate vaccine candidate for Group A Strep, and VAX-PG, a novel protein vaccine candidate targeting the keystone pathogen responsible for periodontitis, and other discovery-stage programs.
Since
• Advanced VAX-24 IND-Enabling Activities: We continue to make significant
progress with VAX-24, including the recent completion of the formal
release of the 24 good manufacturing practice, or GMP, conjugated drugsubstances, or DS, the good laboratory practice non-clinical toxicology
study and the manufacture (formulation, fill and finish) of the GMP drug
product, or DP.
• Presented Preclinical Data Supporting the Potential of VAX-XP: The
poster, "Development of a Next Generation 30+ Valent Pneumococcal
Conjugate Vaccine (VAX-XP) Using Site-Specific Carrier ProteinConjugation," presented at IDWeek 2021, evaluated the immunogenicity of
VAX-XP, our PCV candidate with an expanded breadth of coverage, in New
Zealand white rabbits. The key study findings presented include:
? VAX-XP showed conjugate-like immune responses for all 31 serotypes,
as demonstrated by IgG immune responses 14 days after both an
initial and booster dose that were superior to polysaccharide-based
vaccines and comparable to Prevnar 13.
? All serotypes in VAX-XP elicited a T-cell dependent immune response
as demonstrated by the increase in IgG titers post boost.
• Initiated VAX-A1 IND-Enabling Activities: We continue to advancedevelopment of VAX-A1, a novel conjugate vaccine designed to prevent
infections caused by Group A Streptococcus pyogenes, or Strep, bacteria.
Following the nomination of our final VAX-A1 vaccine candidate in the
first quarter of 2021, we initiated IND-enabling studies in the second
half of 2021, consistent with prior guidance.
• Enhanced Board of Directors with Appointment of Four Industry Veterans:
In
Chair, and Dr.
the September 2021 board appointments of Annie Drapeau and Teri Loxam .
These accomplished industry leaders have
21
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deep experience across the biopharmaceutical and vaccine industries and
will provide additional skills and expertise as we advance and scale our
business.
• Appointed Harp Dhaliwal as Senior Vice President, Commercial
Manufacturing & Supply Chain: In
Senior Vice President of Commercial Manufacturing and Supply Chain and a
member of the executive team.
engineering, operations strategy, manufacturing and supply chain, with
significant expertise in the healthcare industry. During his career, he
has led commercial manufacturing and supply chain for multiple products.
Most recently, Mr. Dhaliwal served as Senior Vice President of Supply
Chain, Manufacturing and Procurement at Dermira and transitioned to EliLilly following the company's acquisition. In this role, he supported
manufacturing network from clinical to commercial. Previously, Mr.
Dhaliwal was the Head of Manufacturing and Supply Chain at
oncology-focused company. Following Pfizer's acquisition of
a long career at Biogen where he ultimately served as Biogen's Chief
Procurement Officer, responsible for managing $3 billion of
enterprise-wide spend. While at Biogen, he was also instrumental in
transforming the manufacturing network, initiating the biosimilar
business and other strategic initiatives. Mr. Dhaliwal has an MBA in
Science and Technology from
Engineering from the University of British Columbia .
• Expanded Scientific Advisory Board with Appointment of Dr. Emmanuel
Hanon: In
veteran and the Global Head of R&D for Viome, to its Scientific Advisory
Board. Previously, Dr. Hanon spent 20 years at GlaxoSmithKline, or GSK,
in R&D roles of increasing responsibility, most recently serving asSenior Vice President, Head of Vaccine R&D and a member of GSK's Vaccine
Executive Team. In this role, he oversaw more than 3,500 employees across
50 countries dedicated to the discovery, development and management
activities for GSK's vaccine efforts. Additionally,
responsible for the shared science and technology platforms supporting
the entire vaccine business, managing technical development, clinical
immunology and preclinical stages of vaccine development. While at GSK,
he contributed to the innovation of many vaccines targeting human
papilloma virus, malaria, tuberculosis, seasonal and pandemic influenza,
shingles, meningitis and RSV.
Virology, and Vaccinology and a Doctorate in Veterinary Medicine from the
University of Liège.
Since our inception in November 2013 , we have devoted substantially all of our
resources to performing research and development, undertaking preclinical
studies and enabling manufacturing activities in support of our product
development efforts, acquiring and developing our technology and vaccine
candidates, organizing and staffing our company, establishing our intellectual
property portfolio and raising capital to support and expand such activities. We
do not have any products approved for sale and have not generated any revenue
from product sales. To date, we have financed our operations primarily with
proceeds from the sales of our redeemable convertible preferred stock and our
initial public offering, or IPO. In July 2021 , we entered into an Open Market
Sales AgreementSM, or the ATM Sales Agreement, with Jefferies LLC , or Jefferies,
which provides that, upon the terms and subject to the conditions and
limitations set forth in the ATM Sales Agreement, we may elect to issue and
sell, from time to time, shares of our common stock having an aggregate offering
price of up to $150.0 million through Jefferies acting as our sales agent or
principal. Through September 30, 2021 , we have raised approximately
$582.1 million in gross proceeds from the sale of our capital stock. We will
continue to require additional capital to develop our vaccine candidates and
fund operations for the foreseeable future. Accordingly, until such time as we
can generate significant revenue from sales of our vaccine candidates, if ever,
we expect to finance our cash needs through public or private equity or debt
financings, third-party (including government) funding and marketing and
distribution arrangements, as well as other collaborations, strategic alliances
and licensing arrangements, or any combination of these approaches.
We have incurred net losses in each year since inception and expect to continue
to incur net losses in the foreseeable future. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending in large part
on the timing of our preclinical studies, clinical trials and manufacturing
activities, and our expenditures on other research and development activities.
Our net loss was $26.6 million and $71.5 million for the three and nine months
ended September 30, 2021 , respectively. As of September 30, 2021 , we had an
accumulated deficit of $270.1 million . As of September 30, 2021 , we had cash,
cash equivalents and investments of $318.3 million , which we believe will be
sufficient to fund our operating expenses and capital expenditure requirements
through at least the completion and announcement of the topline data from our
Phase 1/2 clinical proof-of-concept study of VAX-24 in adults, which we expect
between late 2022 and early 2023, and to continue to advance our pipeline of
other vaccine candidates.
22
-------------------------------------------------------------------------------- We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our vaccine candidates, which we expect will take a number of years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
• advance vaccine candidates through preclinical studies and clinical trials;
• require the scale-up of our manufacturing capabilities;
• require the manufacture of supplies for our preclinical studies and
clinical trials, in particular our lead vaccine candidate, VAX-24;
• pursue regulatory approval of vaccine candidates;
• hire additional personnel;
• operate as a public company;
• acquire, discover, validate and develop additional vaccine candidates; and
• obtain, maintain, expand and protect our intellectual property portfolio.
We rely and will continue to rely on third parties to conduct our preclinical studies and clinical trials and for manufacturing and supply of our vaccine candidates. We have no internal manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for our preclinical and clinical trial materials. Given our stage of development, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our vaccine candidates, we also would expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Because of the numerous risks and uncertainties associated with vaccine development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from the sale of our vaccines, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.
Certain Significant Relationships
Sutro Biopharma
Vaxcyte was formed through its relationship with Sutro Biopharma, Inc., or Sutro Biopharma, in 2013 by our co-founders with the goal of utilizing Sutro Biopharma's proprietary XpressCF platform for protein synthesis in the field of vaccines addressing infectious diseases. In addition to receiving funding, we entered into a license agreement with Sutro Biopharma, or the Sutro License, onAugust 1, 2014 . The Sutro License was amended onOctober 12, 2015 and again onMay 9, 2018 andMay 29, 2018 . Under this license, we received an exclusive, worldwide, royalty-bearing, sublicensable license under Sutro Biopharma's patents and know-how relating to cell-free expression of proteins to (i) research, develop, use, sell, offer for sale, export, import and otherwise exploit specified vaccine compositions, such rights being sublicensable, for the treatment or prophylaxis of infectious diseases, excluding cancer vaccines, and (ii) manufacture, or have manufactured by an approved contract manufacturing organization, such vaccine compositions from extracts supplied by Sutro Biopharma pursuant to the Sutro Biopharma Supply Agreement (as described below). We are obligated to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize the vaccine compositions. In consideration of the rights granted under the Sutro License, we are obligated to pay Sutro Biopharma a 4% royalty on worldwide aggregate net sales of vaccine products for human health and a 2% royalty on such net sales of vaccine products for animal health. Such royalty rates are subject to specified reductions, including standard reductions for third-party payments and for expiration of relevant patent claims. Royalties are payable on a vaccine composition-by-vaccine composition and country-by-country basis until the later of expiration of the last valid claim in the licensed patents covering such vaccine composition in such country and ten years after the first commercial sale of such vaccine composition. In addition, we are obligated to pay Sutro Biopharma a percentage in the low-double digits of any net sublicensing revenue received for sublicense agreements executed beforeJuly 2020 . Our obligation to pay sublicense fees to Sutro Biopharma expired inJuly 2020 . 23 -------------------------------------------------------------------------------- InMay 2018 , we entered into a supply agreement, which we refer to as the Sutro Biopharma Supply Agreement, with Sutro Biopharma pursuant to which we purchase from Sutro Biopharma extract and custom reagents for use in manufacturing non-clinical and certain clinical supply of vaccine compositions utilizing the technology licensed under the Sutro License at prices not to exceed a specified percentage above Sutro Biopharma's fully burdened manufacturing cost. If any extracts or custom reagents do not meet the specifications and warranties provided, then we will not have an obligation to pay for the non-conforming product, and Sutro Biopharma will be obligated to replace the non-conforming product within the shortest possible time with conforming product at our cost. The term of the Sutro Biopharma Supply Agreement is from execution until the later ofJuly 31, 2021 and the date the parties enter into and commence activities under the supply agreement unless extended through a subsequent supply agreement for the supply of Extract and custom reagents for vaccine compositions for Phase 3 and commercial uses as contemplated in the Supply Agreement. InFebruary 2021 , we entered into an amendment to the Sutro Biopharma Supply Agreement and extended the term toJuly 31, 2022 . For additional details regarding our relationship with Sutro Biopharma, see Note 14, "Related Party Transactions," to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Lonza
InOctober 2016 , we entered into a development and manufacturing services agreement, as amended, withLonza Ltd. , or the Lonza DMSA, pursuant to whichLonza Ltd. , or Lonza, is obligated to perform services including manufacturing process development and the manufacture of components for VAX-24, including the polysaccharide antigens, our proprietary eCRM protein carrier and conjugated drug substances. InSeptember 2017 , we and Lonza agreed to defer the completion payments for any stage that commenced afterDecember 31, 2019 or had not been completed byDecember 31, 2019 until the earlier of the completion of all IND-enabling activities orDecember 31, 2020 . InMarch 2020 , Lonza agreed to defer the completion payments until the earlier of the completion of all IND-enabling activities orApril 30, 2021 . InApril 2021 , Lonza further agreed to defer 50% of the completion payments until the earlier of the completion of all IND-enabling activities orDecember 31, 2021 . InJune 2018 , we entered into a letter agreement with Lonza, pursuant to which we agreed to certain terms for potential future payments in shares of our common stock as partial satisfaction of future obligations to Lonza. Specifically, we and Lonza agreed that the initial pre-IND cash payments made by us to Lonza would be subject to a specified dollar cap, which we refer to as the Initial Cash Cap. After the Initial Cash Cap has been reached, then at our election, we would have the option to make any further pre-IND payments owed to Lonza in cash, in shares of our common stock at then market prevailing prices, or a combination of both, provided that (i) Lonza had the right to elect to receive up to 25% of pre-IND payments in shares of our common stock, up to a maximum of$2.5 million , and (ii) we had the right to issue no more than$10.0 million of pre-IND payments in shares of our common stock. InApril 2021 , we reached the Initial Cash Cap and notified Lonza that we would be exercising our option to issue approximately$10.0 million in shares of our common stock as payment for a portion of pre-IND payments dueApril 30, 2021 . InJune 2021 , we issued 399,680 shares of our common stock to Lonza at a price of$25.02 per share to pay for$10.0 million of the pre-IND payments dueApril 30, 2021 . InOctober 2018 , we entered into a second development and manufacturing services agreement with Lonza (the "Lonza 2018 DMSA," and together with the Lonza DMSA, the "Lonza Agreements"), pursuant to which Lonza is obligated to perform services including manufacturing process development and the manufacture and supply of VAX-24 finished drug product. Under the Lonza Agreements, we will pay Lonza agreed upon fees for Lonza's performance of manufacturing services, and we will reimburse Lonza for its out-of-pocket costs associated with purchasing raw materials, plus a customary handling fee. Each Lonza Agreement is managed by a steering committee and any dispute at the steering committee will be resolved by senior executives of the parties. Impact of COVID-19 We are continuing to closely monitor the impact of the global COVID-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our employees and to maintain business continuity. We believe that the measures we have implemented and continue to implement are appropriate, and we will continue to monitor and seek to comply with guidance from governmental authorities and adjust our activities as appropriate. Based on guidance issued by federal, state and local authorities, we transitioned to a remote work model for our non-lab based employees inMarch 2020 , while maintaining essential in-person laboratory functions in order to advance key research and development initiatives, supported by the implementation of updated onsite safety procedures, including routine testing of employees. We recently began to allow non-lab based employees who have been fully vaccinated to return to the office on a voluntary and limited basis. 24 -------------------------------------------------------------------------------- In particular, the COVID-19 pandemic slowed raw material supply chains and travel restrictions delayed the qualification of key analytical equipment used in manufacturing and curtailed in-person contract manufacturing organization, or CMO, oversight of manufacturing, affecting our manufacturing processes. As the pandemic continues, we could see an additional impact on our ability to advance our programs, obtain supplies from our contract manufacturers or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority, employee resources or otherwise. In any event, if the COVID-19 pandemic continues and persists for an extended period of time, we could experience significant disruptions to our development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects. In addition, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic could result in significant and prolonged disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the continued spread of COVID-19 could materially affect our business and the potential value of our common stock. The extent of the impact of the COVID-19 pandemic on our development and regulatory efforts, our ability to raise sufficient additional capital on acceptable terms, if at all, and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements inthe United States and in other countries, and the effectiveness of actions taken globally to contain and treat COVID-19. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, see the section titled "Risk Factors."
Components of Results of Operations
Operating Expenses
Research and Development
Research and development expenses represent costs incurred in performing
research, development and manufacturing activities in support of our own product
development efforts and include personnel-related costs (such as salaries,
employee benefits and stock-based compensation) for our personnel in research
and development functions; costs related to acquiring, developing and
manufacturing supplies for preclinical studies, clinical trials and other
studies, including fees paid to contract manufacturing organizations; costs and
expenses related to agreements with contract research organizations,
investigative sites and consultants to conduct non-clinical and preclinical
studies and clinical trials; professional and consulting services costs;
research and development consumables costs; laboratory supplies and equipment
costs; and facility and other allocated costs.
Research and development expenses are expensed as incurred. Non-refundable
advance payments for services that will be used or rendered for future research
and development activities are recorded as prepaid expenses and recognized as
expenses as the related services are performed. We do not allocate our costs by
vaccine candidates, as our vaccine candidates are at an early stage of
development and our research and development expenses include internal costs,
such as payroll and other personnel expenses, which are not tracked by vaccine
candidate. In particular, with respect to internal costs, several of our
departments support multiple vaccine candidate research and development
programs.
We expect our research and development expenses to increase substantially in
absolute dollars for the foreseeable future as we advance our vaccine candidates
into and through preclinical studies and clinical trials, pursue regulatory
approval of our vaccine candidates and expand our pipeline of vaccine
candidates. The process of conducting the necessary preclinical and clinical
research to obtain regulatory approval is costly and time-consuming. The actual
probability of success for our vaccine candidates may be affected by a variety
of factors, including the safety and efficacy of our vaccine candidates, early
clinical data, investment in our clinical programs, competition, manufacturing
capability and commercial viability. We may never succeed in achieving
regulatory approval for any of our vaccine candidates. As a result of the
uncertainties discussed above, we are unable to determine the duration and
completion costs of our research and development projects or if, when and to
what extent we will generate revenue from the commercialization and sale of our
vaccine candidates.
We accrue for costs related to research and development activities based on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors, including CMOs, that conduct research and development on
our behalf. The financial terms of these agreements are subject to negotiation,
vary from contract to contract and may result in uneven payment flows. There may
be instances in which payments made to our vendors exceed the level of services
provided and result in a prepayment of the research and development expense.
Advance payments for goods and services to be used in future research and
development activities are expensed when the activity has been performed or when
the goods have been received. We make significant judgments and estimates in
determining accrued research and development liabilities as of each reporting
period based on
25
-------------------------------------------------------------------------------- the estimated time period over which services will be performed and the level of effort to be expended. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.
Our research and development costs may vary significantly based on factors such as:
• the costs and timing of our chemistry, manufacturing and controls, or
CMC, activities, including fulfilling GMP-related standards and
compliance, and identifying and qualifying a second supplier;
• the costs related to raw materials estimates from our third-party
manufacturing and supply partners;
• the cost of clinical trials of our vaccine candidates being greater than
we anticipate;
• changes in the standard of care on which a clinical development plan was
based, which may require new or additional trials;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• delays in adding a sufficient number of trial sites and recruiting
suitable volunteers to participate in our clinical trials;
• the number of subjects that participate in the trials;
• the number of doses that subjects receive;
• subjects dropping out of a study or lost in follow-up;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of subject participation in the trials and follow-up; • the cost and timing of manufacturing our vaccine candidates; • the phase of development of our vaccine candidates; and • the efficacy and safety profile of our vaccine candidates.
General and Administrative
General and administrative expenses consist primarily of costs and expenses related to personnel (including salaries, employee benefits and stock-based compensation) in our executive, legal, finance and accounting, human resources and other administrative functions; legal services, including relating to intellectual property and corporate matters; accounting, auditing, consulting and tax services; insurance; and facility and other allocated costs not otherwise included in research and development expenses. We expect our general and administrative expenses to increase substantially in absolute dollars for the foreseeable future as we increase our headcount to support our continued research and development activities and grow our business. We also anticipate that we will incur increased expenses as a result of operating as a public company, including expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance withSEC rules and regulations and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services. 26 --------------------------------------------------------------------------------
Other Income (Expense), Net
Other income (expense), net includes interest expense incurred on our capital leases for lab equipment, interest income earned from our cash, cash equivalents and investments, grant income, gain (loss) from sale of investments, foreign currency transaction gains (losses) related to our Swiss Franc cash and liability balances (see Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," Note 3, "Fair Value Measurements and Fair Value of Financial Instruments," and Note 7, "Redeemable Convertible Preferred Stock," to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more detail).
Grant Income
InJuly 2019 , we received a cost-reimbursement research award from Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator, or CARB-X, a public-private partnership funded under a Cooperative Agreement from Assistant Secretary forPreparedness and Response/Biomedical Advanced Research and Development Authority and by awards fromWellcome Trust ,Germany's Federal Ministry of Education and Research , theUnited Kingdom Global Antimicrobial Resistance Innovation Fund and theBill & Melinda Gates Foundation . In connection with this funding, we entered into a cost-reimbursement sub-award agreement with the Trustees ofBoston University , the administrator of the program, or the CARB-X agreement. CARB-X awarded us up to$1.6 million in initial funding to advance the development of a universal vaccine to prevent infections caused by Group A Strep Bacteria. InJuly 2020 , the CARB-X agreement was amended with the initial funding amount increased from$1.6 million to$2.7 million . InDecember 2020 , we reached the maximum CARB-X funding limit for this initial funding period, and subsequently submitted our funding proposal to CARB-X for the next period under our agreement. InApril 2021 , we received approval for the next phase of CARB-X development and executed the cost-reimbursement sub-award agreement with the Trustees ofBoston University inAugust 2021 . Pursuant to the CARB-X agreement, the award commits additional funding of$3.2 million for IND-enabling activities and total potential funding of up to$29.7 million (including the current$3.2 million award and the prior$2.7 million award) upon the achievement of future VAX-A1 development milestones. Separately, theNational Institute of Health , orNIH , awarded us up to$0.5 million inApril 2021 to advance the development of a vaccine against Shigella infection. Grant income pursuant to our award agreements is recognized as we incur and pay qualifying expenses over the periods of the awards. We recognized$0.3 and$0.8 million in grant income for funding research and development during the three months endedSeptember 30, 2021 and 2020, respectively, and$0.7 million and$2.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Grant income is included as a component of Other income (expense), net in the condensed statements of operations.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods
presented:
Three Months Ended September 30, Change
2021 2020 $ %
(in thousands)
Operating expenses:
Research and development $ 20,428 $ 16,410 $ 4,018 24.5 %
General and administrative 6,523 4,898 1,625 33.2 %
Total operating expenses 26,951 21,308 5,643 26.5 %
Loss from operations (26,951 ) (21,308 ) (5,643 ) 26.5 %
Other income (expense), net:
Interest expense - - - *
Interest income 90 33 57 172.7 %
Grant income 299 787 (488 ) (62.0 )%
Realized gain on marketable securities 1 - 1 *
Foreign currency transaction losses (54 ) (530 ) 476 (89.8 )%
Total other income (expense), net 336 290 46 15.9 %
Net loss $ (26,615 ) $ (21,018 ) $ (5,597 ) 26.6 %
* not meaningful
27
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Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods presented:
Three Months Ended September 30, Change
2021 2020 $ %
(in thousands)
Product and clinical development (1)
4,305 2,620 1,685 64.3 %
Professional and consulting services 1,153 1,085 68 6.3 %
Research and development consumables 1,651 475 1,176 247.6 %
Facility related and other allocated 2,173 413 1,760 426.2 %
Laboratory supplies and equipment 810 732 78 10.7 %
Other (2) 237 374 (137 ) (36.6 )%
Total research and development expenses
24.5 %
(1) Includes expenses for third-party manufacturing and outsourced contract
services, including preclinical studies and outsourced assays.
(2) Includes travel-related expenses, warrant expense and other miscellaneous
office expenses.
Research and development expenses increased by $4.0 million , or 24.5%, during
the three months ended September 30, 2021 compared to the corresponding period
in 2020. The increase of $1.7 million in personnel-related expenses was
primarily due to higher salaries, benefits and stock-based compensation expense
resulting from an increase in the number of options granted and the growth in
the number of employees to support our expanded activities in research and
development. The increase of $1.2 million in research and development
consumables was primarily related to costs incurred for extracts and reagents
during the third quarter of 2021 for our VAX-24 manufacturing scale-up and
VAX-XP activities. The increase of $1.8 million in facility related and other
allocated expenses was primarily related to increases in rent and lease expense
as well as headcount.
General and Administrative Expenses
General and administrative expenses increased by$1.6 million , or 33.2%, during the three months endedSeptember 30, 2021 compared to the corresponding period in 2020. The increase was mainly due to increases of$1.2 million in personnel-related expenses, which were related to higher salaries, benefits and stock-based compensation expense resulting from an increase in the number of options granted and the growth in the number of employees in our general and administrative functions and$0.4 million in professional and consulting services related primarily to compliance activities under the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and technology infrastructure enhancements as a result of operating as a public company.
Other Income (Expense), Net
Other income (expense), net increased by less than$0.1 million , or 15.9%, during the three months endedSeptember 30, 2021 compared to the corresponding period in 2020. The increase was primarily attributable to a reduction in foreign currency losses of$0.5 million generated on Swiss Franc payables as a result of the appreciation of theU.S. dollar against the Swiss Franc, partially offset by a decrease of$0.5 million in grant income for the CARB-X program. 28 --------------------------------------------------------------------------------
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the periods
presented:
Nine Months Ended September 30, Change
2021 2020 $ %
(in thousands)
Operating expenses:
Research and development $ 55,337 $ 58,903 $ (3,566 ) (6.1 )%
General and administrative 18,487 11,225 7,262 64.7 %
Total operating expenses 73,824 70,128 3,696 5.3 %
Loss from operations (73,824 ) (70,128 ) (3,696 ) 5.3 %
Other income (expense), net:
Interest expense (7 ) (7 ) - -
Interest income 245 212 33 15.6 %
Grant income 677 2,152 (1,475 ) (68.5 )%
Realized gain on marketable 2 -
securities 2 * Foreign currency transaction gains (losses) 1,393 (709 ) 2,102 * Total other income (expense), net 2,310 1,648 662 40.2 % Net loss$ (71,514 ) $ (68,480 ) $ (3,034 ) 4.4 %
_________________________________
* not meaningful
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods presented:
Nine Months Ended September 30, Change
2021 2020 $ %
(in thousands)
Product and clinical development (1)
12,325 6,718 5,607 83.5 %
Professional and consulting services 3,245 3,117 128 4.1 %
Research and development consumables 4,792 1,173 3,619 308.5 %
Facility related and other allocated 5,261 2,153 3,108 144.4 %
Laboratory supplies and equipment 2,377 1,542 835 54.2 %
Other (2) 591 922 (331 ) (35.9 )%
Total research and development expenses
_____________________________________________
(1) Includes expenses for third-party manufacturing and outsourced contract
services, including preclinical studies and outsourced assays.
(2) Includes travel-related expenses, warrant expense and other miscellaneous
office expenses.
Research and development expenses decreased by$3.6 million , or 6.1%, during the nine months endedSeptember 30, 2021 compared to the corresponding period in 2020. The decrease was primarily attributable to a decrease of$16.5 million in product and clinical development expenses mainly related to our lead vaccine candidate, VAX-24, which was driven by a$14.9 million decrease in costs related to outsourced manufacturing activities and a$1.7 million decrease in outsourced research services as a result of the completion of the eCRM and polysaccharide GMP campaigns in 2020, partially offset by increases in VAX-24 drug substance, drug product and manufacturing scale-up activities and VAX-XP activities in 2021. The increase of$5.6 million in personnel-related expenses was primarily due to higher salaries, benefits and stock-based compensation expense related to an increase in the number of options granted and the growth in the number of employees to support our expanded activities in research and development. The increase of$3.6 million in research and development consumables was primarily due to costs incurred for extracts and reagents incurred during 2021 for our VAX-24 manufacturing scale-up activities and VAX-XP program. The increase of$3.1 million in facility related and other allocated expenses was primarily related to increases in rent and lease expense, headcount and lab equipment depreciation.
General and Administrative Expenses
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General and administrative expenses increased by $7.3 million , or 64.7%, during
the nine months ended September 30, 2021 compared to the corresponding period in
2020. The increase was primarily attributable to increases of $5.4 million in
personnel-related expenses, which were related to higher salaries and benefits,
recruiting expense, employee development expense and stock-based compensation
expense resulting from an increase in the number of options granted and the
growth in the number of employees in our general and administrative functions,
$1.0 million in directors and officers insurance expense and $0.9 million in
professional and consulting services related primarily to compliance activities
under the Sarbanes-Oxley Act and technology infrastructure enhancements as a
result of operating as a public company.
Other Income (Expense), Net
Other income (expense), net increased by$0.7 million , or 40.2%, during the nine months endedSeptember 30, 2021 compared to the corresponding period in 2020. The increase was primarily attributable to an increase of foreign currency gains of$2.1 million generated by Swiss Franc payables resulting from the depreciation of theU.S. dollar against the Swiss Franc onSeptember 30, 2021 compared toDecember 31, 2020 , partially offset by a decrease of$1.5 million in grant income for the CARB-X program.
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations from inception throughSeptember 30, 2021 . We have funded our operations to date primarily through equity financings totaling approximately$582.1 million in aggregate gross proceeds and$557.3 million net of underwriting discounts, commissions and offering expenses. As ofSeptember 30, 2021 , we had$112.0 million of cash and cash equivalents,$206.3 million in investments and an accumulated deficit of$270.1 million . OnJuly 2, 2021 , we filed a shelf registration statement on Form S-3ASR, or the Shelf Registration Statement, under which we may, from time to time, sell securities in one or more offerings of our common stock, preferred stock, debt securities or warrants. The Shelf Registration Statement became automatically effective upon the filing of the Form S-3ASR onJuly 2, 2021 .
Future Funding Requirements
Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative expenditures. We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our vaccine candidates, expand our corporate infrastructure, including the costs associated with being a public company, further our research and development initiatives for our vaccine candidates and scale our laboratory and manufacturing operations. We are subject to all of the risks typically related to the development of new drug candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations. We believe that our existing cash, cash equivalents and investments as of the date of this Quarterly Report on Form 10-Q will be sufficient to fund our operating expenses and capital expenditure requirements through at least the completion and announcement of the topline data from our Phase 1/2 clinical proof-of-concept study of VAX-24 in adults, which we expect between late 2022 and early 2023, and to continue to advance our pipeline of other vaccine candidates. However, we will need to raise additional capital prior to commencing pivotal trials for any of our vaccine candidates. Until we can generate a sufficient amount of revenue from the commercialization of our vaccine candidates or from collaboration agreements with third parties, if ever, we expect to finance our future cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financings may subject us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of or eliminate one or more of our research and development programs. 30
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Our future capital requirements will depend on many factors, including:
• the timing, scope, progress, results and costs of research and
development, testing, screening, manufacturing, preclinical and
non-clinical studies and clinical trials, including any impacts related
to the COVID-19 pandemic;
• the outcome, timing and cost of seeking and obtaining regulatory
approvals from the FDA and comparable foreign regulatory authorities,
including the potential for such authorities to require that we perform
field efficacy studies for our PCV candidates, require more studies than
those that we currently expect or change their requirements regarding the
data required to support a marketing application;
• the cost of building a sales force in anticipation of any product
commercialization;
• the costs of future commercialization activities, including product
manufacturing, marketing, sales, royalties and distribution, for any of
our vaccine candidates for which we receive marketing approval;
• our ability to maintain existing, and establish new, strategic
collaborations, licensing or other arrangements and the financial terms
of any such agreements, including the timing and amount of any future
milestone, royalty or other payments due under any such agreement;
• any product liability or other lawsuits related to our products;
• the revenue, if any, received from commercial sales, or sales to foreign
governments, of our vaccine candidates for which we may receive marketing
approval;
• the costs to establish, maintain, expand, enforce and defend the scope of
our intellectual property portfolio, including the amount and timing of
any payments we may be required to make, or that we may receive, in
connection with licensing, preparing, filing, prosecuting, defending and
enforcing our patents or other intellectual property rights;
• expenses needed to attract, hire and retain skilled personnel;
• the costs of operating as a public company; and
• the impact of the COVID-19 pandemic, which may exacerbate the magnitude
of the factors discussed above.
A change in the outcome of any of these or other variables could significantly change the costs and timing associated with the development of our vaccine candidates. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such change.
At-the-Market Offering
InJuly 2021 , we entered into the ATM Sales Agreement with Jefferies, which provides that, upon the terms and subject to the conditions and limitations set forth in the ATM Sales Agreement, we may elect to issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to$150.0 million through Jefferies acting as our sales agent or principal. Under the ATM Sales Agreement, Jefferies may sell the shares of common stock by any method permitted by law deemed to be an "at-the-market offering" as defined under the Securities Act of 1933, as amended, or the Securities Act, in block transactions or in privately-negotiated transactions with our consent. Jefferies will use commercially reasonable efforts to sell the shares of common stock subject to the ATM Sales Agreement from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions that we may impose). We will pay Jefferies a commission of up to 3.0% of the gross sales proceeds of any common stock sold through Jefferies under the ATM Sales Agreement; however, we are not obligated to make any sales of common stock. As ofSeptember 30, 2021 , we have sold 498,502 shares of our common stock under the ATM Sales Agreement at an average price of$25.15 per share for aggregate gross proceeds of$12.5 million ($12.2 million net of commissions and offering expenses). As ofSeptember 30, 2021 , we recorded approximately$5.0 million of receivables in Prepaid expenses and other current assets in the condensed balance sheet for net proceeds related to the sale of common stock under the ATM Sales Agreement that had not been received as ofSeptember 30, 2021 . 31 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
2021 2020
(in thousands)
Net cash used in operating activities $ (70,300 ) $ (35,860 )
Net cash used in investing activities (212,390 ) (383 )
Net cash provided by financing activities 9,042 374,315
Effect of exchange rate changes on cash and cash equivalents 363 - Net (decrease) increase in cash, cash equivalents and restricted cash$ (273,285 ) $ 338,072
Cash Flows from Operating Activities
Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$70.3 million , which primarily resulted from a net loss of$71.5 million and a net change in our operating assets and liabilities of$9.6 million , partially offset by non-cash charges of$10.8 million . The net change in operating assets and liabilities of$9.6 million was primarily due to (i) an increase in prepaid and other current assets of$16.3 million related to prepaid rent expenses resulting from theSan Carlos office leasehold improvements, (ii) an increase in other assets of$3.0 million related to assets purchased to support manufacturing activities and (iii) a decrease in accrued manufacturing expenses of$6.0 million resulting from timing of receipt of invoices, partially offset by increases in accrued expenses of$8.4 million related primarily to an increase in outsourced research services for the VAX-24 program and accounts payable of$5.6 million resulting from the timing of payments. Non-cash charges primarily consisted of$7.6 million in stock-based compensation expense and$1.3 million in depreciation and amortization. Net cash used in operating activities for the nine months endedSeptember 30, 2020 was$35.9 million , which primarily resulted from a net loss of$68.5 million , partially offset by a net change in our operating assets and liabilities of$27.6 million and non-cash charges of$5.1 million . The net change in operating assets and liabilities of$27.6 million was primarily due to increases in (i) accrued manufacturing expenses of$18.8 million related to outsourced manufacturing activities, (ii) accounts payable of$7.3 million resulting from the deferral of completion payments untilApril 2021 in accordance with our contract with Lonza, (iii) accrued expenses of$1.4 million related primarily to increases in contract research services associated with the VAX-24 program and (iv) accrued compensation of$1.1 million . Non-cash charges primarily consisted of$3.5 million in stock-based compensation expense and$1.1 million in depreciation and amortization.
Cash Flows from Investing Activities
Cash used in investing activities for the nine months endedSeptember 30, 2021 was$212.4 million , which related primarily to$295.3 million in purchases of investments and$5.2 million in purchases of lab equipment, partially offset by$58.0 million in maturities of investments and$30.1 million in sales of investments.
Cash used in investing activities for the nine months ended
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2021 was$9.0 million , which primarily consisted of net proceeds from shares issued under our ATM Sales Agreement of$7.1 million and proceeds from exercises of common stock options and shares issued under our employee stock purchase plan of$1.9 million . 32
-------------------------------------------------------------------------------- Cash provided by financing activities for the nine months endedSeptember 30, 2020 was$374.3 million , which primarily consisted of net proceeds of$264.0 million from our IPO and$109.9 million from the issuance of our Series D redeemable convertible preferred stock.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments atSeptember 30, 2021 : Payments Due by Period Less More than 1 - 3 3 - 5 than 1 Year Years Years 5 Years Total (in thousands) Operating lease obligations(1)$ 142 $ 762 $ 495 $ -$ 1,399 Purchase commitments(2) 1,338 $ - $ - $ -$ 1,338 Total$ 1,480 $ 762 $ 495 $ -$ 2,737
(1) Consists of our office lease in
expire in
expire in
column is net of lease incentives allocated to the
amounts included in the 1-3 Years and 3-5 Years columns include lease
payments for the
as a result of accounting for the leases as a combined lease. See footnote 5,
"Leases" under Part I, Item 1 of this Quarterly Report on Form 10-Q.
(2) Consists of
VAX-24 manufacturing campaign, which was recorded in Accrued manufacturing
expenses.
The contractual obligations table above does not include lease payments
allocated to the San Carlos office of approximately $25.1 million to be paid
over the four years beginning with the rent commencement date of the lease.
Lease payments for the San Carlos office will be finalized upon the rent
commencement date of the lease, which we anticipate will occur by the end of
2021 or early 2022.
We have certain payment obligations under various license agreements. Under
these agreements, we are required to make milestone payments upon successful
completion and achievement of certain intellectual property, clinical,
regulatory and sales milestones. The payment obligations under the license
agreements are contingent upon future events such as our achievement of
specified development, clinical, regulatory and commercial milestones, and we
will be required to make development milestone payments and royalty payments in
connection with the sale of products developed under these agreements. As the
achievement and timing of these future milestone payments are not probable or
estimable, such amounts have not been included in our balance sheets as of
September 30, 2021 or December 31, 2020 , or in the contractual obligations table
above. See Note 14, "Related Party Transactions," to our condensed financial
statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We enter into agreements in the normal course of business with vendors for
preclinical and non-clinical studies, manufacturing and supply of our
preclinical materials and for other services and products used for operating
purposes. These contracts are generally cancelable following a certain period
after written notice, and therefore, we believe that our non-cancelable
obligations under these agreements are not material and have not been included
in the table above.
Legal Contingencies
From time to time, we may become involved in legal proceedings arising from the
ordinary course of business. We record a liability for such matters when it is
probable that future losses will be incurred and that such losses can be
reasonably estimated. Significant judgment by us is required to determine both
probability and the estimated amount. We do not believe that there is any
litigation or asserted or unasserted claim pending that could, individually or
in the aggregate, have a material adverse effect on our results of operations or
financial condition.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined in the rules and regulations of the
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--------------------------------------------------------------------------------Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our condensed financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Except as disclosed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies" to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no significant changes in our critical accounting policies during the nine months endedSeptember 30, 2021 , as compared with those previously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 29, 2021 .
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. However, as described in Note 3 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we early adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies to the extent early adoption is permitted. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company untilDecember 31, 2021 .
Recently Adopted Accounting Pronouncements
See Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
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