PFE - Vaxcyte: Looking Fully Valued

2023-12-28 12:12:14 ET

Summary

• Today, we take a deeper look at Vaxcyte, whose stock has seen a sharp rally in the past four weeks and is approaching analyst price targets.
• The company's lead candidate, VAX-24, has potential to be the best-in-class pneumococcal conjugate vaccine.
• Vaxcyte has a strong balance sheet and two candidates in late-stage development, but competition from Pfizer and potentially Merck may pose challenges upon potential FDA approval.
• An updated analysis around Vaxcyte follows in the paragraphs below.

"All great truths begin as blasphemies ." - George Bernard Shaw

Today, we put Vaxcyte, Inc. ( PCVX ) in the spotlight. After being rangebound for months, the stock has moved sharply higher over the past four weeks. With the recent rally, the shares are fast approaching analyst firm price targets. The stock is also seeing some notable insider selling. Can this equity continue to rally? An analysis follows below.

Company Overview:

This Santa Clara-headquartered clinical-stage biotechnology vaccine company is focused on developing broad-spectrum conjugate and novel protein vaccines to prevent or treat bacterial infectious diseases. The company develops its vaccine candidates using its proprietary XpressCF™ cell-free protein synthesis platform. Management believes that this platform is " uniquely positioned to create vaccines that can overcome bacteria's formidable defense mechanisms and be produced on a significant scale ." Of note, this developmental platform is exclusively licensed from Sutro Biopharma, Inc. ( STRO ) . The recent rally has taken the stock above the $63.00 a share level, where it sports an approximate market capitalization of just over $6 billion.

Recent Developments:

The company has several vaccine candidates currently in its pipeline. The developmental firm's lead candidate is dubbed VAX-24. It is a 24-valent pneumococcal conjugate vaccine or PCV candidate that is being developed for the prevention of invasive pneumococcal disease [IPD]. The company believes this candidate has the potential to be the best-in-class PCV. This is an approximately $7 billion global market that is showing considerable growth. VAX-24 was given Breakthrough Therapy status early this year to prevent IPD. This disease affects just less than a million people annually in the United States, resulting in approximately 150,000 hospitalizations.

Earlier this month, the company released steady data that showed a safety and tolerability profile comparable to Pfizer's ( PFE ) standard of care Prevnar 20 shot for the prevention of IPD in healthy adults 18-64 years of age. The Prevnar family of vaccines produced over $6.3 billion in annual sales for Pfizer in FY2022. In mid-October, Vaxcyte inked a new commercial manufacturing agreement with Lonza ( LZAGY ) to produce both VAX-24 and VAX-31 on a large scale.

Following the positive results (which indicated a potential best-in-class profile for VAX-24 when released in October 2022) from the VAX-24 adult Phase 2 clinical studies, management at Vaxcyte completed a successful End-of-Phase 2 meeting with the FDA focused on the clinical design of an upcoming and pivotal Phase 3 study. This program should initiate in 2024 and top-line data from the study should be out sometime in 2025.

The company's next most advanced effort is around a candidate called VAX-31. This is a next-generation PCV candidate that contains 31 valents that address over 90% of pneumococcal disease currently circulating in the U.S. The company recently received clearance from the FDA to initiate a Phase 1/2 study around VAX-31. Top-line data from these efforts is scheduled to be out in the second half of 2024.

The other assets (VAX-A1, VAX-GI, and VAX-PG) are too early in their developmental cycles to be germane to this analysis.

Analyst Commentary & Balance Sheet:

Since the company posted its third-quarter results on November 6th, four analyst firms including Bank of America and BTIG have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered are in a tight range between $67 to $69 a share.

Approximately eight percent of the outstanding float of the stock is currently held short. After posting a net loss of $92.7 million for the third quarter, the company had just over $1.42 billion worth of cash and marketable securities on its balance sheet . Numerous insiders have been frequent and consistent sellers of the stock in 2023. So far in the fourth quarter, they have disposed of just over $6.5 million worth of shares collectively.

Verdict:

Vaxcyte, Inc. has two candidates in late-stage development and plenty of cash on its balance sheet to continue to advance these efforts in the coming years. Any potential commercialization is a few years off and the company will have to compete with Pfizer, which has a massive sales organization. Merck ( MRK ) also has a late-stage PCV candidate that might be superior in some ways to Prevnar 20 as well.

Given that, and the fact the stock after this rally is getting very close to analyst firm price targets, would keep me on the investment sidelines concerning PCVX at these trading levels.

"Truth never damages a cause that is just ." - Mahatma Gandhi

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