Why investors are suddenly excited about Vaxcyte

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Key points

  • Intense social media buzz translated into intense business activity for Vaxcyte.
  • The company recently announced promising data from its proof-of-concept study for the lead pneumococcal vaccine candidate VAX-24.
  • Even if short-term profit taking sets in, Vaxcyte could be a long-term vaccine winner.

It’s not often that a stock doubles in a week, but Vaxcyte, Inc. (NASDAQ:PCVX) did just that.

The small-cap biotech is being catapulted into mid-cap land with a stunning 110% surge last week — and might not.

Intense social media buzz has translated into strong business activity for the lesser-known vaccine developer. Compared to the stock’s early Covid triple, recent volume was in the stratosphere.

Move over Pfizer and Moderna. A new vaccine maker is on the way.

What does Vaxcyte do?

California-based Vaxcyte is a vaccine maker that went public in June 2020. Given the timing, some speculated it was about to throw its hat in the ring to develop a Covid-19 vaccine – from especially since the president of Vaxcyte was the main adviser to Operation Warp. Speed, the White House Covid vaccine program. Not the case.

While most were scrambling to slow the spread of the coronavirus, the Sutro Biopharma spin-off was setting the stage for a pneumonia vaccine trial. Why focus on pneumonia during a global health crisis?

Long before the coronavirus outbreak, pneumonia was a serious problem. It is the leading cause of death in children aged five and under. Children and adults combined, it is the most common cause of unplanned hospitalization in the country. Nearly one million Americans contract pneumonia each year.

While Vaxcyte’s SEC filings were filled with Covid mentions (51 to be exact), they concerned the potential impact of the virus on the company’s pneumonia vaccine ambitions. Although they have no intention of developing a Covid vaccine, traders have increased stock with the rest of the vaccine group.

Why is Vaxcyte stock skyrocketing?

Vaxcyte hosted a webcast to present data from its proof-of-concept study of VAX-24, the company’s lead pneumococcal vaccine candidate. In this study, the vaccine is being evaluated for the prevention of the disease in adults aged 18 to 64 years.

Different doses of VAX-24 have been studied and all met the main objectives of safety and tolerability. At the conventional dose level, the vaccine met or exceeded regulatory standards for immunogenicity.

In terms of efficacy, all 20 VAX-24 serotypes met standard response criteria and 16 of them elicited higher immune responses.

The results gave management the confidence to move forward with the study of VAX-24 in adults and children. In August 2022, VAX-24 received FDA Fast Track designation for adult pneumonia.

The positive frontline data is undoubtedly a big step for Vaxcyte, but hurdles remain. First, the study is still in its early stages and further evidence of the efficacy and safety of VAX-24 will be needed to move the candidate forward. Second, VAX-24 faces fierce competition. Pfizer’s Prevnar 20 and Merck’s Pneumovax 23 are considered the leading vaccines on the market.

The good news for Vaxcyte is that VAX-24 has an edge over the others as it is a 24-valent pneumococcal vaccine. This means that it contains 24 viral strains while Prevnar and Pneumovax contain 20 and 23 respectively. If finally approved, the full composition of VAX-24 could allow it to gain access to a larger share of the market.

Following the news, Vaxcyte launched a complementary stock and warrant offering in hopes of raising an additional $600 million. It eventually raised $690 million, including the option for underwriters to buy more shares.

Often these types of post-announcement offers cause a sale due to dilution issues, but this was not the case with Vaxcyte. Investors continued to pick up shares even after the big run, a sign of strong demand.

Is Vaxcyte a Good Momentum Game?

After a five-day run from $20 to $43, the suddenly hyped biotech could end 2022 with the wind at its back. As we learned two years ago, when the stock fell from around $18 to $58, it can take off quickly when traders rally behind this company.

The caveat here is that the environment today is quite different. Pandemic scare and the throwing of darts at coronavirus vaccine candidates fueled the 2020 race. This time around, Vaxcyte stands against a risky market in which the slightest rally is snuffed out by the bears. Because of this, it may be prone to crashing back to Earth.

Even if short-term profit taking sets in, Vaxcyte could be a long-term vaccine winner. There is a clear need for more effective pneumonia vaccinations around the world. VAX-24 also has the potential to be used for related conditions such as meningitis. More than half of all cases of bacterial meningitis in the United States are caused by pneumococcal bacteria.

Although it was not a Covid vaccine player, Vaxcyte could benefit from the spotlight that has been placed on vaccines. Globally, vaccines are expected to become a $58 billion business by 2025.

A setback from the steep climb seems inevitable, so trying to jump on the bandwagon here could be risky. If that happens though, investors could have a third opportunity to buy an emerging vaccine player with good long-term growth prospects.

Before you consider Vaxcyte, you’ll want to hear this.

MarketBeat tracks daily the highest rated and most successful research analysts on Wall Street and the stocks they recommend to their clients. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the market takes off… and Vaxcyte wasn’t on the list.

Although Vaxcyte currently has a “Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

See the five actions here

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