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

The small cap biotech company catapulted back to mid-cap land with a stunning 110% surge last week — and may not be done.

Intense social media buzz translated to heavy trading 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. There’s a new vaccine maker on the move. 

What Does Vaxcyte Do?

California-based Vaxcyte is a vaccine manufacturer that went public in June 2020. Given the timing, some assumed it was about to throw its hat in the ring to develop a Covid-19 vaccine — especially since Vaxcyte’s chairman was the lead advisor of Operation Warp Speed, the White House’s Covid vaccine program. Not the case.

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

Long before the coronavirus outbreak, pneumonia was a serious issue. It's the leading cause of death among children ages five and under. Children and adults combined, it is the nation’s most common cause of unplanned hospitalization. Nearly 1 million Americans get pneumonia annually.

While Vaxcyte’s SEC filings were loaded with Covid mentions (51 to be exact), they were about the potential impact of the virus on the company’s pneumonia vaccine ambitions. Despite no intention to develop a Covid vaccine, traders bid up the stock along with the rest of the vaccine group. 

Why Is Vaxcyte Stock Exploding?

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 ages 18 to 64.

Various doses of VAX-24 were studied and all met the primary safety and tolerability objectives. At the conventional dose level, the vaccine met or exceeded regulatory immunogenicity standards.

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

The results gave management the confidence to move forward with studying VAX-24 in both adult and children populations. In August 2022, VAX-24 received the FDA’s Fast Track Designation for adult pneumonia.

The positive topline data is no doubt a big step for Vaxcyte but hurdles remain. First, the study is still in the early stages and further proof of VAX-24’s effectiveness and safety will be needed to advance the candidate. Second, VAX-24 faces stiff competition. Pfizer’s Prevnar 20 and Merck’s Pneumovax 23 are considered the lead vaccines in the market. 

The good news for Vaxcyte is that VAX-24 has an advantage over the others because it is a 24-valent pneumococcal vaccine. This means it contains 24 virus strains while Prevnar and Pneumovax contain 20 and 23 respectively. If it is ultimately approved, VAX-24’s comprehensive composition could gain it access to a broader part of the market. 

Following the news, Vaxcyte launched an add-on stock and warrants offering in hopes of raising an additional $600 million. It ultimately raised $690 million including the option for underwriters to buy more shares. 

Often these types of post-announcement offerings cause a selloff due to dilution concerns, but that wasn’t the case with Vaxcyte. Investors continued to scoop up shares even after the big run, a sign of strong demand.

Is Vaxcyte a Good Momentum Play?

After a five-day run from $20 to $43, the suddenly hot biotech could finish 2022 with the wind at its back. As we learned two years ago when the stock went from roughly $18 to $58, it can take off in a hurry when traders get behind this company.

The caveat here is that today’s environment is quite different. Pandemic fear and throwing darts at coronavirus vaccine candidates fueled the 2020 run. This time around, Vaxcyte is bucking a risk-off market in which the slightest of rallies are getting snuffed out by the bears. For this reason, it may be prone to a crash back to Earth.

Even if near-term profit-taking sets in, Vaxcyte could be a long-term vaccine winner. There is a clear need for more effective pneumonia vaccinations globally. VAX-24 also has the potential to be used for related conditions such as meningitis. Over half of all bacterial meningitis cases in the U.S. are caused by pneumococcus bacteria. 

Even though it wasn’t a Covid vaccine player, Vaxcyte could reap the benefits of the spotlight that has been placed on vaccines. Globally, vaccines are projected to become a $58 billion business by 2025. 

A pullback from the steep climb seems inevitable, so trying to hop on the bandwagon here could be risky. If it happens though, investors may have a third opportunity to buy into an emerging vaccine player with healthy long-term growth prospects.