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 between January andJune 2022 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. SinceJanuary 1, 2021 , key developments affecting our business include the following: • Advanced VAX-24 IND-Enabling Activities: We continued to progress several initiatives for VAX-24 in connection with our
anticipated IND
application submission to the FDA and ensuing Phase 1/2 clinical
proof-of-concept study initiation. Among other activities, we made
substantive progress toward completion of the final stage of production
of the 24 good manufacturing practice, or GMP, conjugated drug
substances.
• Progressed and reported new data for VAX-XP program: As part of our
strategy to maximize the optionality and value of our PCVfranchise, we
have continued to advance VAX-XP, our broader-spectrum PCVcandidate
designed to cover at least 30 strains. In March, we announced new data
for VAX-XP that further demonstrate the potential benefits of our
scalable technology platform and the reproducibility of data with
conjugates produced at larger scale. Results from a preclinical
proof-of-concept study showed that in rabbit models for VAX-XPcompared
to more than 30 different pneumococcal serotypes, including all of
those contained in Prevnar 13, the VAX-XP IgG immune responses were
superior to polysaccharide-only serotypes and comparable toPrevnar 13
in the common 13 strains.
• Advanced and published data for VAX-A1 program: We advanced VAX-A1, our
novel conjugate vaccine candidate designed to prevent infections from
Group A Strep, a human pathogen causing pharyngitis, or strep throat,
and certain severe invasive infections such as sepsis, toxic shock
syndrome and necrotizing fasciitis. Based on the progress of the
program, and consistent with target timelines, we nominated the final
VAX-A1 vaccine candidate in the first quarter of 2021. In
we announced the publication of preclinical data in the journal
Infectious Microbes & Diseases, which showed that VAX-A1 demonstrated
meaningful protection against systemic and soft tissue infection after
challenge with no evidence of cross-reactivity with human tissue.
• Published New Research Supporting VAX-24 and our Technology Platform:
Since the beginning of 2021, we published preclinical VAX-24 data as
well as research supporting our technology platform.
o The paper, "Non-clinical Immunological Comparison of a
Next-Generation 24-Valent Pneumococcal Conjugate Vaccine (VAX-24)
Using Site-Specific Carrier Protein Conjugation to the Current
Standard of Care (PCV13 and
20
--------------------------------------------------------------------------------
PPV23)," published in May in the journal Vaccine, uses a rabbit model
to evaluate the immune response of Vaxcyte's 24-valent PCV candidate
compared to Prevnar13® (PCV13) and Pneumovax®23 (PPV23). In this
study, all serotype conjugates (pneumococcal strains) in VAX-24 met
the primary objective to elicit immune responses that were more
robust compared to PPV23 and at least comparable to PCV13.
o The paper, "Sitespecific antigenadjuvant conjugation using
cellfree protein synthesis enhances antigen presentation and CD8+
Tcell response," was published in March in the journalScientific
Reports, and demonstrated an enhanced CD8 positive T-cell response by
directly conjugating an adjuvant to a candidate antigen. This
expansion of our site-specific technology platform has potential
application in viral vaccines where an enhanced CD8 T-cell response
is required.
• Strengthened leadership team and advisory board with key appointments:
In April 2021 , we appointed Janet Graesser as Vice President of
Corporate Communications and Investor Relations. Mrs. Graesser brings
to us over 20 years of healthcare communications experience and
expertise across a variety of areas, including corporatecommunications
and strategy, public relations and organizational communications. She
dedicated 13 years of her career working at leading healthcare
communications firms, ultimately serving as an Executive Vice
President, delivering communications strategy and implementation to
biotech, pharmaceutical and consumer health companies, including Amgen,
GlaxoSmithKline ("GSK"), Johnson & Johnson ("J&J"), Pfizer and Merck.
She went on to hold an operating role at J&J with responsibility for
internal and external communications across seven J&J medical device
companies, including Cordis. Mrs. Graesser remained in a senior
leadership role with Cordis when it was acquired by Cardinal Health,
ultimately serving as the Vice President of GlobalCommunications and
Strategy Implementation. Mrs. Graesser went on to establish her own
consulting practice that successfully supported both large and small
biotech companies. In February 2021 , we added William Hausdorff , PhD to
our Scientific Advisory Board . Dr. Hausdorff has worked on the
development, clinical evaluation, registration, implementation and
post-marketing assessment of a variety of vaccines over the past 30
years. Since 2018, Dr. Hausdorff has served as the Lead, Public Health
Value Propositions for Vaccines at PATH, a global organization that
works to accelerate health equity by bringing together public
institutions, businesses, social enterprises, and investors to solve
the world's most pressing health challenges. Prior to joining PATH, he
worked for 12 years at GSK Vaccines , eight years at WyethVaccines and
was previously at the Centers for Disease Control and Prevention. In
his roles at GSK Vaccines and Wyeth Vaccines, he was involved in the
development of Synflorix® and Prevnar 13®, respectively. Dr. Hausdorff
received his PhD in Biology from The Johns Hopkins University and his
BA in Biology from Carleton College .
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. Through March 31, 2021 , we have raised
approximately $569.5 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 $21.2 million for the three months ended March 31, 2021 . As of
March 31, 2021 , we had an accumulated deficit of $219.8 million . As of March 31,
2021 , we had cash, cash equivalents and investments of $370.9 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.
21
--------------------------------------------------------------------------------
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 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 . 22 -------------------------------------------------------------------------------- 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. ("Lonza") (the "Lonza DMSA"), pursuant to which 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 commences afterDecember 31, 2019 or has 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 are 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 can 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 may 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 may issue no more than$10 million of pre-IND payments in shares of our common stock. The Initial Cash Cap had not been reached as ofMarch 31, 2021 . 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 . 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. 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. 23
-------------------------------------------------------------------------------- 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 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.
24
--------------------------------------------------------------------------------Our clinical 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.
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, foreign currency transaction gains (losses)
related to our Swiss Franc cash and liability balances and changes in the fair
value of our redeemable convertible preferred stock tranche liability (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).
25
--------------------------------------------------------------------------------
Grant Income
InJuly 2019 , CARB-X awarded us up to$1.6 million in initial funding to advance the development of a universal vaccine to prevent infections caused byGroup A Strep Bacteria. InJuly 2020 , the CARB-X agreement was amended to increase the funding percentage for reimbursable expenses during the initial funding period from 50% to 90%. As a result, the initial funding amount increased from$1.6 million to$2.7 million . Income is recognized as we incur and pay qualifying expenses over a period that ends onDecember 31, 2020 . Qualifying expenses under this funding arrangement are recorded as a receivable when we have both incurred and paid the expenses. We recognized$0 and$0.3 million in grant income for funding research and development under this award during the three months endedMarch 31, 2021 and 2020, respectively. Grant income is included as a component of Other income (expense), net in the condensed statements of operations and comprehensive loss. Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods
presented:
Three Months Ended March 31, Change
2021 2020 $ %
(in thousands)
Operating expenses:
Research and development $ 17,258 $ 24,315 $ (7,057 ) (29.0 )%
General and administrative 5,885 3,281 2,604 79.4 %
Total operating expenses 23,143 27,596 (4,453 ) (16.1 )%
Loss from operations (23,143 ) (27,596 ) 4,453 (16.1 )%
Other income (expense), net:
Interest expense - (7 ) 7 (100.0 )%
Interest income 61 135 (74 ) (54.8 )%
Grant income - 329 (329 ) (100.0 )%
Foreign currency transaction gains
(losses) 1,862 (3 ) 1,865 *
Total other income (expense), net 1,923 454 1,469 323.6 %
Net loss $ (21,220 ) $ (27,142 ) $ 5,922 (21.8 )%
* not meaningful
Operating Expenses
Research and Development Expenses
The following table summarizes our research and development expenses for the
periods presented:
Three Months Ended March 31, Change
2021 2020 $ %
(in thousands)
Product and clinical development (1)
4,009 1,956 2,053 105.0 %
Professional and consulting services 1,035 1,052 (17 ) (1.6 )%
Research and development consumables 1,823 95 1,728 *
Facility related and other allocated 1,219 743 476 64.1 %
Laboratory supplies and equipment 621 359 262 73.0 %
Other (2) 189 383 (194 ) (50.7 )%
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.
* not meaningful
26
-------------------------------------------------------------------------------- Research and development expenses decreased by$7.1 million , or 29.0%, during the three months endedMarch 31, 2021 compared to the corresponding period in 2020. The decrease was primarily attributable to a decrease of$11.4 million in product and clinical development expenses mainly related to our lead vaccine candidate, VAX-24, driven by decreases of$10.2 million in outsourced manufacturing activities and$1.1 million in outsourced research services due to the completion of the eCRM and polysaccharide GMP campaigns in 2020, partially offset by increases in VAX-24 drug substance and drug product activities and VAX-XP activities. The increase in personnel-related expenses of$2.1 million was primarily due to increased salaries, benefits and stock-based compensation expense related to the increase in the number of employees to support the expanded activities in research and development. The increase of$1.7 million in research and development consumables was primarily due to expenses related to extracts and reagents incurred during the first quarter of 2021 for our VAX-XP program.
General and Administrative Expenses
General and administrative expenses increased by$2.6 million , or 79.4%, during the three months endedMarch 31, 2021 compared to the corresponding period in 2020. The increase was mainly due to increases of$2.1 million in personnel-related expenses related to higher stock-based compensation expense resulting from an increase in the number of options granted and an increase in the fair value of our common stock affecting the valuation of new option grants during 2020, as well as growth in the number of employees in our general and administrative functions, and$0.5 million in other expenses primarily due to an increase in directors and officers liability insurance expense as a public company.
Other Income (Expense), Net
Other income (expense), net increased by$1.5 million , or 323.6%, during the three months endedMarch 31, 2021 compared to the corresponding period in 2020. The increase was primarily due to unrealized gains from increases in Swiss Franc payables and accrued liabilities and the appreciation of theU.S. dollar against the Swiss Franc. This increase was partially offset by a decrease of$0.3 million in grant income for the CARB-X program, which reached its funding limit inDecember 2020 .
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations from inception throughMarch 31, 2021 . We have funded our operations to date primarily through equity financings totaling approximately$569.5 million in aggregate gross proceeds and$545.2 million net of underwriting discounts, commissions and offering expenses. As ofMarch 31, 2021 , we had$198.9 million of cash and cash equivalents,$171.9 million in investments and an accumulated deficit of$219.8 million .
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 27 --------------------------------------------------------------------------------
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.
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 thefinancial 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 mayreceive, 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.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (13,205 ) $ (13,633 )
Net cash used in investing activities (173,391 ) (349 )
Net cash provided by financing activities 487 109,797
Effect of exchange rate changes on cash and cash equivalents (281 ) - Net (decrease) increase in cash, cash equivalents and restricted cash$ (186,390 ) $ 95,815
Cash Flows from Operating Activities
Net cash used in operating activities for the three months endedMarch 31, 2021 was$13.2 million , which primarily resulted from a net loss of$21.2 million , partially offset by a net change in our operating assets and liabilities of$5.5 million and non- 28 -------------------------------------------------------------------------------- cash charges of$2.5 million . The net change in operating assets and liabilities of$5.5 million was primarily due to increases in accrued manufacturing expenses of$2.5 million related to outsourced manufacturing activities, accounts payable of$2.2 million resulting from the deferral of completion payments untilApril 2021 andDecember 2021 in accordance with our contract with Lonza (see Note 6, "Commitments and Contingencies" under Item 1 of this Quarterly Report on Form 10-Q for further details), and accrued expenses of$1.1 million related primarily to increases in contract research services related to the VAX-24 program. Non-cash charges primarily consisted of$1.9 million in stock-based compensation expense and$0.3 million in depreciation and amortization. Net cash used in operating activities for the three months endedMarch 31, 2020 was$13.6 million , which primarily resulted from a net loss of$27.1 million , partially offset by a net change in operating assets and liabilities of$12.6 million and non-cash charges of$0.9 million . The net change in operating assets and liabilities of$12.6 million was primarily due to increases in accrued manufacturing expenses of$13.2 million related to outsourced manufacturing activities and accrued expenses of$1.2 million resulting primarily from increases in legal fees from our Series D preferred stock financing and patent filings, partially offset by a$1.0 million increase in prepaid expenses and other current assets related to prepaid license fees of various systems and prepaid costs related to contract manufacturing activities and a$0.7 million decrease in accounts payable due to timing of payments. Non-cash charges primarily consisted of$0.4 million in depreciation and amortization and$0.4 in stock-based compensation expense.
Cash Flows from Investing Activities
Cash used in investing activities for the three months ended
Cash used in investing activities for the three months ended
Cash Flows from Financing Activities
Cash provided by financing activities for the three months endedMarch 31, 2021 was$0.5 million , which primarily consisted of proceeds from exercise of common stock options. Cash provided by financing activities for the three months endedMarch 31, 2020 was$109.8 million , which primarily consisted of net proceeds from the issuance of our Series D redeemable convertible preferred stock.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments atMarch 31, 2021 : Payments Due by Period Less More than 1 - 3 3 - 5 than 1 Year Years Years 5 Years Total (in thousands) Operating lease obligations(1)$ (69 ) $ 781 $ 689 $ -$ 1,401 Total$ (69 ) $ 781 $ 689 $ -$ 1,401
(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.
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
29
-------------------------------------------------------------------------------- timing of these future milestone payments are not probable or estimable, such amounts have not been included in our balance sheets as ofMarch 31, 2021 orDecember 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
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 three months endedMarch 31, 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 of 2002, as amended, 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 until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenues of$1.07 billion or more, (ii)December 31, 2025 , (iii) the date on which we are deemed to be a "large 30
-------------------------------------------------------------------------------- accelerated filer," under the rules of theSEC , which means the market value of equity securities that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th and (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period.
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.
© Edgar Online, source
