LENZ Therapeutics, Inc. (LENZ) Earnings Call Transcript & Summary

[Audio Gap] LENZ Therapeutics and Eef Schimmelpennink, CEO. And just by way of background, my name is Jason Gerberry. I'm one of the Smid Cap Biotech and Spec Pharma analysts at BofA. And so I've known you guys for a couple of years now. And here we are -- we're getting closer to the big day, your FDA action date for LNZ100, your treatment for Presbyopia. So maybe if you want to just kind of level set in terms of where you guys are at as a company, I think you did a recent investor event. And my takeaway was its kind of heads down, blocking and tackling, making sure that all your I's are dotted and T's are crossed ahead of the regulatory event, but also getting ready for launch. So maybe anything you want to say, and then we'll get into more specific questions.

Absolutely. Thanks, Jason. Thanks for having us here. Like you said, we're very close to our expected approval. PDUFA date is August 8 of this year. So I think within 90 days of that date now. The interaction with the FDA are moving forward very nicely. I know it's on all of our minds. No impact there. Our review team on the FDA side is fully in place. Interactions are as frequent and fruitful as they have been. So we remain very confident on our approval timeline there. So with that, it's indeed heads down and effect actually depends down on the commercial strategy. So everything is locked, everything is loaded. We're hiring the final sales reps and all making sure that we're ready to go upon approval. So that is indeed the focus of the company at the moment, getting the FDA to approve the product, making sure that we're ready to launch, and then it's off to the races.

All right. And given the strength of the Phase III data, I don't really -- I think most investors probably look at this as a low regulatory risk event. But nonetheless, we kind of have to ask all of our companies in lieu of like some headcount reductions at FDA and dislocations at FDA. I think you sort of alluded to it in your opening response, but the things are kind of status quo with the review team and who's overseeing the review and that underpins confidence in sort of timeliness of review outcome?

It does. Yes. No. So like I said, our review team on the FDA side, fully in place. Late cycle review is actually pulled forward. Frankly, I don't read too much into that other than I think it's a [indiscernible] thing, but obviously, it's nice to be pulled in rather than or better than to be pushed out. So later this month, we'll have the late cycle review. And then as we all know, it's the last couple of months, where we hope to get label feedback, final inspections of sites as we move to that August 8 approval date. But again, we've not seen any changes on our end. We're definitely on top of the pile given the attention that we're getting from the FDA at the moment.

So August, assuming you get approved, you've talked about 4Q launch. What transpires between August and, say, October 1, which is the beginning of 4Q in terms of packaging or some of just the things that you maybe can't have ready -- on the ready, but -- or maybe it could just also be that eye doctors are not as easily available in August and August isn't a good time to launch as well. So maybe what are some of the factors that lead to that lag in launch time?

Yes. So it's definitely not the latter. You can think of this product as a very high-volume product, which means that we are actually already producing bulk. So commercial product is being produced as we speak. But we need to wait for final labelling to do final packaging. So that's truly a logistical moment between approval and having product in the market. It just takes some time, as you can imagine, to print final labels, do the final packaging on a very high-volume product. So that's what's making up that time between, let's call it, August 9 and actual product in the market. It's not that we're sitting still in that period. Our sales force, like I mentioned, is almost completely hired. They'll be in place on July 1. So we'll train them up and they'll be ready to go when we have approval. So they'll start making their first calls to doctors, making sure that everything is in place there. They'll start to educate. We'll continue to educate doctors because we already have an MSL team in the field right now. So they'll get a couple of call cycles in. And then once we have products, they'll start to hand drop samples. And obviously, we'll have product in the channel for scripts to be filled.

Okay. In terms of manufacturing readiness, these will be single-use sort of droppers. Is that right? So does that add any layer of complexity in terms of having a drug product in the, I guess, dispensers available to supply the market. So where are you in terms of like a manufacturing readiness and like a sales force readiness standpoint?

So we're ready for commercial manufacturing. Like I said, we are producing at commercial scale. We actually produced our clinical batches at commercial scale already. These little [ blow field ] seal containers or these droppers, if you walk through your CVS or whatever target aisle, you'll see hundreds of different brands of OTC products. It's the same type of dropper. So this is not a complicated product to produce. They're being produced by the tens, if not hundreds of millions. So it doesn't add a layer of complexity. It's actually -- we've chosen to do that because we wanted to have a preservative-free product. That's what the whole market is going to also something you need to be able to commercialize ex-U.S. It's also the preferred packaging unit for a consumer because it allows you to have 5 in your office, 5 in your bathroom, you can take them wherever. So that's why we chose for that product form. And like we said we have a lot of both products on hand already waiting to be final packaged.

Okay. Any I guess as you go into the process of submitting an NDA, any label variables that to you are important to the commercial story and uptake of the product that you'd be kind of anticipating negotiating with FDA or do you feel like the package insert is pretty straightforward based on the clinical data?

Yes. No, the package insert, we expect to be pretty straightforward. And most of you know that AbbVie launched a product a couple of years ago. We expect the label to be pretty much identical to their label. It's important to realize that this is not a label sale, so very different than your oncology products where it's exactly on what's on your label, defines what patient population you can target. This label is extremely broad. The VUITY label was for use in Presbyopia in adults. We expect that we're going to get that same label. This is much more an experienced cell. So we'll sample very heavily, will be a 5-pack sample because we know we can pretty much guarantee by looking at the clinical data that if you're a presbyo, you put a drop in your eye, you're going to be able to see your phone again and actually read it within a very short period of time. So it's that sample that's actually going to convince people that this works, not so much the label. Now having said that, our label will have our data in it, we expect, which is multiple times better than anything else out there. So that will allow the sales force to actually talk about the data.

I was going to say, I think the clinical section should be your main point of differentiation, right? And maybe can you speak to other myiotic drops, launches or data and how you see your clinical section differentiating LNZ100?

Yes. So we're looking at it from a data perspective and an MOA perspective, these products are very straightforward. It's all about creating a small pinhole pupil and need to be below 2 millimeters. If you're not below 2 millimeters, your near vision does not really improve, and that's what we saw with VUITY. So if you want to compare products and frankly there's not that many products out there anymore. What you do is look at pupil size. You see that we're the only product that consistently has almost everyone below 2 millimeters in pupil size, and we keep everyone there for 10 hours. You compare that with VUITY, the smallest pupil size that they got to was about 2.3 millimeters and then very quickly, they got above 3 millimeters again. And that's what you see with the 1 or 2 other products that are trying to compete or get to the market as well. And that pupil size then immediately translates to efficacy. So if you compare our efficacy, again, with VUITY, we're about 3x more efficacious but at least a 3x longer duration, but also a 6x larger population. And VUITY and others really focus on people with good distance vision because they impact negatively distance vision. We don't have that issue. So just around out our 10-hour data is actually better than peak efficacy for VUITY. So peak efficacy for VUITY was 25%. Our 10-hour data is 40%; 0.5 hour, 1-hour data, 70% for 3 lines, 95% for 2 lines. So really completely different experience for patients, and that's what we've actually shown in our Commercial Day as well where we had some patient testimonials in there, the first ones to give everybody a sense of what this product does. And that's where you see how people respond into a product like this.

Yes, it seems like some key differentiating aspects are that it still works really well at 10 hours and it doesn't cause myopic shift. Is that data that you think would get into the label that's probably more secondary endpoint type of data? I'm just kind of curious how you think about that or that's just data that you'll be able to communicate in other mechanisms?

Yes, it's very easy to communicate. Like I said, we already have our 10 people MSL team out there, obviously, doing -- they are up to over 2,000 or so individual doctor-to-doctor interactions. This is almost optometry 101 for optometrists and ophthalmologists. This is what they learn probably in their first course. And if you overstimulate what's called the ciliary body, you're driving myopic shift, which negatively impacts your distance vision. That's what you saw with VUITY, it's what you expect to see with [indiscernible] and other products. So you don't see that with our products and our clinical data shows that, but also the MOA shows that. So we don't stimulate the ciliary body. It's very pupil selective and therefore, a product that's ideal for Presbyopia. And again, that's something that's very easy to communicate, very easy to understand for doctors.

Okay. Safe to say, would you characterize this as a -- well, it's a massive market. There's no debate about that, but it's a promotion-sensitive market.

Absolutely. So there's 2 ways to win. Again, I don't want to keep comparing to VUITY, but the nice thing is that we had a product in the market that we could learn from a lot. So when VUITY launched with the sales force only, they got very quickly up to about 3,000 new scripts a week. So that's organic. Every optometrist on average sees over 200 presbyopes on a monthly basis. So that's 40 million presbyopes that are just presenting themselves to the channel. So that's that first part of the commercial strategy. But then when I turn on DTC, which is what we will do as well, a quarter or so in, that number doubles. So it's very promotionally sensitive. So there's 2 ways to win. One, you target patients that are already presenting themselves, 40 million or so. And then you turn on DTC, that's a number that you can double. So a huge amount of patients indeed out there to target.

Yes. Okay. And then one interesting aspect of this market is that it's not reimbursed, right? It's cash pay. So that affords you maybe some latitude promotionally to do some things that maybe if it was a reimbursed medication that you couldn't do. Are you able to speak to that dynamic at all in terms of -- I thought it was interesting at your Commercial Day talking about how you've already engaged with a lot of optometrists on the brand -- I guess, the unbranded promotional strategy and how you're getting them engaged and thinking about the product and acting almost as influencers, right, to kind of get the word out about LNZ100.

Yes. Now the fact that it's cash pay, we value a lot. We think that's a great attribute. It's going to -- it's a market -- you see more and more products shifting in that way. GLP-1 is obviously the prime example at the moment, which acts as a very promotionally sensitive market that shows great results and then people are willing to pay. We're not going to be priced like the GLP-1. VUITY priced at $80 a month. It's safe to assume that we'll be closely around that. We've not guided yet. So this is, therefore, a product that you don't have to first get lives in short or people covered in the very first script that we sell, it's going to hit our bottom line. So a very healthy, clean revenue stream. It's obviously very attractive to us and potentially others as well. So from an influencer point of view, we're starting to see it happen already. We spoke about it at the Commercial Day that doctors are -- people that were in our trial are talking about it because it's something that you can see happening no pun intended before your eyes. They put a drop into the patient's eyes. And within 10, 15 minutes, they could see upflows again. That effect is obviously a very powerful one, and we like to talk about that. And we're actually seeing patients that were in our trials also independent from us, obviously, talking about it. As recent as last week, we was looking at stock twits and we saw somebody there raving about, I was in this trial, and I used to be able to play pool and now I couldn't because there was [indiscernible], I took the drop and I could again. So we're like, is this somebody that's just trying to pump the stock. But we checked it. It was actually somebody that was indeed in our study. So that's something that we expect is going to happen over and over again because it is such a clear effect that you see so rapidly.

It seems like perhaps a comp here is contact lenses. Contact lenses to the patient, the out-of-pocket cost is probably going to be similar on a monthly basis. And so -- and you're ultimately appealing to somebody that wants to be glasses free, right? Do you look at the contact lens market at all and sort of informing how you think about a launch ramp and patient segmentation?

Yes. Great question. So like I said earlier, a massive market, 128 million presbyopes that pretty much everyone because we had an all-comer -- almost all-comer study can benefit from a product like this. But you want to make sure that you definitely initially target segments that over-index on willingness to use and contact lens wearers are one of them. There's 47 million people that wear contact lenses in the U.S. that use drops very rapidly at 45, 50 because they actually become presbyopic and now they need to wear reading glasses. So they stop using contact lenses. A product like ours is going to be able to keep them in contact lenses, very valuable patient for optometrists as well. So there's over 10 million in that age group just sitting there. A second group of people that have had LASIK, similarly, they have paid money to be glasses-free. They've not thought about wearing glasses from the moment that they had LASIK, let's call it from age 25 or so. 45, 50 and they see their near vision go and need to wear glasses, which clearly they don't want to. So again, great group, a large group over 10 million that can use the drops to stay glasses free. And then the third initial group to go after is people that go to MediSpa, people that obviously care about their appearance. They don't want to leave the MediSpa with a great face and then have to put a pair of glasses on them. So those are groups that we'll target initially just to make sure that we don't go after 128 million people. Again, it doesn't mean that the market is not a lot larger, but just to make sure that we give a little bit of guidance to sales force and to optometrists.

I was going to say thinking about your 15,000 ECPs, how does that break out between ODs and MDs? And then how are you able to touch the MediSpa within that sort of target prescriber base? Because I would imagine that the MediSpa is more of an aesthetic dermatologist.

Yes. So it's not a MediSpa from a call point of view, but it's a MediSpa consumer. And the optometrists, ophthalmologists, they can single them out very easily. Like we've asked them, do you know who your LASIK patients are, your contact lens wearers and your MediSpa and they go, yes, we can identify each one of them very easily. So it's more a call point that's still optometry. And to your point, so 80% of the call point is going to be on optometry, about 20% ophthalmology. That's where we see the split in scripts. So 15,000 call points with about 100 reps. So that gets you to about a 3-week call cycle. So every 3 weeks, you're going to see the rep, the rep is going to hand deliver the samples. And then like I said earlier, key for us to have every sample pack, which is a 5-day sample pack, be accompanied by a script, and that's how the patient will walk out.

Okay. You mentioned DTC and how important is that and if you turn it on in a couple of quarters? I know investors tend to think DTC can be pricey. But given the company your size, resources and the ambition to get to cash flow breakeven based on the resources you have at hand, what that may look like and how important it's going to be to the early adoption?

Yes. So from the beginning, we wanted to build a company that can launch a product in a great way. So we're not skimping on it there. We've made sure that we have the resources to put a launch on and the size that you would expect from, frankly, big pharma. So we're actually doing a little bit more even than what AbbVie did with VUITY. So think about it as about $100 million between sales force and marketing in year 1 after launch. So that's how we're going to put the launch on. And the nice thing is, and we're, I guess, blessed with that is that we have a very healthy balance sheet. As recently as last week, we guided to sitting -- be sitting on $190 million, $190 million of cash at PDUFA date. So at the moment of launch, we have $190 million. And we continue to guide and we've done that for the last 5 quarters that, that can get us to being cash flow positive at that cash. So right amount of money, importantly, the right team in place to then pull out what we think is going to be a phenomenal launch of this product.

Okay. And then in terms of marketing strategy, if you were just to kind of pinpoint how we're going to do it differently than, say, AbbVie had done it with VUITY. It seems like the sampling e-pharmacy, maybe that's one component that's uniquely different, perhaps how you approach DTC and just sort of prelaunch commercial marketing efforts are different. Maybe if you can kind of like walk us through what you think the key pillars are to how you market and launch or I should say, market the launch differently.

Yes. So let me tie that to our commercial strategy. So commercial strategy has 3 pillars: One, doctors to recommend us, that's obviously sales force. Then 2, [ this year with the ] request us by name, that's the DTC campaign. And the third is seamless journey to use that's a sampling and then getting your final product. So what we're going to do different on the first one on the doctor side is that we're actually targeting 80% optometry, 20% ophthalmology, which is exactly the reverse from what we did or what AbbVie did. And logically, AbbVie's sales force is ophthalmology, that's where the rest of the product sits, but scripts flow through optometry. So they are, if you will, on the wrong call point. So we're going to start off by going on the right call point, but also with a product that works. And that sounds a little bit cheeky, but that's ultimately what the big difference is that the product works, you go to the right call points. On the DTC side, we have a campaign lined up. That's much more of today's world. So much more digitally focused, meeting patients and consumers where they live, whether it's the Facebooks, the Instagrams, the TikToks of this world, definitely not linear TV, which is where AbbVie went. The commercials are on the Hallmark channel, which, again, that's not where you want to meet your consumer, definitely not where we feel our targeted consumers live. And then on the seamless journey to use, to your point, so 5-pack sample, as I've mentioned. Think of that as just the 5 days to get you between first sample use to final script. E-pharmacy is a channel that we have in place. We also have retail pharmacy in place. So as a consumer, you can choose when you're in the office, your doctor will ask you whether you want me to send your script. We'll drive to e-pharmacy and you will know how it works nowadays. You leave the office, you have the text coming up on your phone, you opt in, put your credit card details in, drug shows up on your door step 3 to 5 days later. So that's one channel. If you do want to go a little bit more traditional, you can still have it sent to your CVS or your Walgreens or whatever you want to pick it up and you just pick up a script there. So both are going to be available to consumers.

Okay. So persistency of use is obviously kind of a key modelling variable. Maybe walk us through how you think about that. I would imagine that a lot of patients wanting to be glasses-free. Everybody's got a sweat pants in glasses a day or 2 here, right? So imagine a month's supply could last longer than that. And how do you think about a patient that's on board, how frequently they're going to use it in a given year?

Yes. So we've obviously done a lot of research on that through surveys, came out 4 to 7 days a week. And then we, as you would imagine, asked all the patients that were on products in our [ Clinical III ] trial after they've used it either for 6 weeks or 6 months, like how often would you continue to use it. And again, it came back 4 to 7 days a week. So people are all saying they're going to use it pretty much every single day of the week because why wouldn't you, gives you back your vision. We're looking at it in a lot more conservative way, though. We say that's great. They say that, but let's be modest about it. Let's cut that in half. 4 to 7-day use would be 10 scripts a year. We're saying let's cut it in half like I said 5 scripts a year. So 42% refill rate is what we model with. That's what gets you to a $3 billion market, U.S. alone. Obviously, a lot of upside in that given that patients are saying that they're going to use a lot more often, but let's get to that number first.

Okay. In terms of the pricing, you mentioned where VUITY kind of [ settles in at ], do you think that this will be sort of an economically sensitive sort of product, right? So if there was like a recession, for example, like how that might impact and maybe you look to contact lens data utilization in different like past historical scenarios or do you think that sort of the consumers are going to be higher on the socioeconomic strata and maybe be a little bit more insulated from those pressures?

Yes [indiscernible]. We've obviously looked at that. We've done quite a bit of work over the last couple of months to get a sense for that. We do feel that we're going to be pretty insulated. The reason that we feel that is, one, indeed, just how we model it. We're saying to get to the $3 billion number, consumers that we're targeting are making at least $10,000 a year on a -- again, let's assume it's an $80 product. That's not going to be too impactful. More importantly, if you look at either 2008 Recession or more recently, COVID, you see that, that products that people feel are important to them, whether it's BOTOX or contact lenses or other, let's say, call it, lower cost aesthetic products, pretty insulated, maybe a 5% to 10% impact on BOTOX in 2008, '09, '10 timeframe, but even that was minimal. So you don't see a lot of impact. If you were to see it, it's again maybe a 5% or 10%, which is obviously great. People look at this as just like you're not going to stop using your contact lenses. You're not going to stop using a product that gives you [indiscernible].

Yes. Okay. And so that $3 billion market, right, as a TAM, how do you think about the competitors that are out there and scenarios where LNZ100 can be the dominant option versus do you see any competitors that, hey, like a share of voice might be good and they'll build up the market and maybe we think we can be the dominant product, but that others can coexist in this marketplace.

Yes. We truly see this as a category of one, and that's not us trying to be arrogant, but that's just really looking at the data. Like I said earlier, if you look at pupil size and look at clinical data, it's just a very different product. And this is not a product that you can promise your way through. You can't promise somebody that here's an eye drop that restores your near vision and then it doesn't, people are not going to use it. That's what we saw with VUITY. That's what we expect. We'll see with the one or 2 other products that may come to the market because, frankly, they just don't have the product -- the profile. So again, we look at this as a category of one, and that's how we're approaching it. That's how we're approaching it with our commercial strategy to really build it up like that. So again, I think it's the product and the experience that is going to set us apart. It's super easy, super accessible to get a sample. Why wouldn't you try it? And if the product works and others don't, then it's hard to see how that will change the market.

Okay. And from an IP runway perspective with this drug, you've got some patents, I think, to 2034, some to '39. I think some patent term extension. Like how long of a lived asset do you see this from an exclusivity standpoint in the key U.S. market?

Yes, it's got a very long life cycle. A couple of reasons in the middle indeed sits the IP. We have 7 granted patents in the U.S. that go to 2034 method of use, so [indiscernible] for the use in Presbyopia, formulation patents. [indiscernible] 13 or 14 that's currently under review that will take it to 2044 so very strong patent portfolio. In front of that sits, if you will, a new chemical entity protection, so data exclusivity of 5 years in the U.S. And on the back end, there's never going to be a product that genericizes in the traditional way because there is no insurance involvement. So there's not going to be a mechanism where at pharmacy level or at e-pharmacy level, you're going to get switched to a different product. So what you see with these branded products is that they live on, I won't say forever, but for a very, very long time. So I think we and many people that look at the product, look at it as a very healthy, safe, insulated revenue stream, no PBM negotiations, no pricing discussions that are happening even over the last couple of days. We're all insulated from that for a very, very long tail.

Okay. And then we're running out of time here, but how should investors think about your R&D investment and strategy? I imagine in the near-term, the focus is on your launch. But longer term, is it life cycle management investments that you'd be thinking about making or complementary assets down the road once you get to a comfortable place of cash flow breakeven and maybe leveraging your commercial infrastructure? Like what is the longer term look like for you when you think about R&D investment and maybe the timing for like, all right, now we've gotten LNZ100 to a good place, we start to think about additional investments.

Yes. No, very fair question. So by design and from the beginning, we focused our company on this one asset. There's not that many $3 billion-plus opportunities out there. So we wanted to make sure that we had every dollar, every brain cell focused on this product. We do see that once we've shown the opportunity and how this can evolve, this can be a great cornerstone product in a larger portfolio. Given the company and how we expect to grow the portfolio, I would expect that to be M&A and BD driven. We would be looking for late-stage or maybe even on-market products that we can add to the back, either in ophthalmology or maybe even as a life cycle company.

And then lastly, is there a profile of the sales rep that you want to hire? Is this somebody that has pre-existing relationships with ODs who are going to be the primary prescriber and has a foot in the door or given there aren't many Rx therapeutics available for ODs to prescribe other than like XDEMVY that I can think of, like I don't know, is there a profile? There always is a profile.

There's always a profile. So we have 88 territories, 88 reps that we're hiring. We have -- we're close to 8,000 applicants. Now somebody -- one of the investors said it's actually harder to get into LENZ than into Harvard, which I thought was a pretty comparison. So a lot of interest. What we're looking for is somebody that has indeed sales experience ideally in eye care. So the profile of the 50 or so that we've currently hired out of the 88 is just that. So an average of more than 10 years of sales experience, 90%, 95% of them have eye care experience. We're lucky that people are leaving great jobs to get to even better ones. So we're able to hire extremely talented people.

All right. Well, great. Well, this is really helpful, and I appreciate you coming by.

Thank you. Thank you, Jason.