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

All right. Hi, everyone. Thanks for joining us at the Goldman Sachs Annual Healthcare Research Conference. I'm joined by Eef Schimmelpennink, who we're thrilled to have with us today to talk a bit about LENZ as a company as well as their key programs, which is rapidly approaching a key regulatory update in August.

So with that, we will go ahead and begin. Eef, maybe we can just start on that regulatory note. You're expecting a PDUFA on August 8. Any updates there or anything you can share about the regulatory path?

Absolutely. First, obviously, thank you all for having us here at Goldman. Always pleased to be here, great meetings. So on the PDUFA side, just as a reminder, our PDUFA is August 8 of this year. So I think, about 60 days left to go, 59 days, rapidly approaching. And our dialogue with the FDA is great, very productive. We're clearly on top of the pile. We had our late cycle review with the FDA about 1.5 weeks, 2 weeks now ago, maybe. It was a [indiscernible] meeting, literally a 7-minute meeting in which the FDA takes you through their agenda. Agenda point 1 is to date, no major observations, any questions. Agenda point 2, no minor observations, any questions, no additional data required. They confirmed no AdCom and reiterated on track for a PDUFA date -- PDUFA date of August 8. So we continue to feel confident in that process and continue to look forward to have that be a moment where our product is approved, we know final label, and we're ready to start commercializing.

Great. Wonderful. With that question behind us, maybe we zoom back out and talk a little bit about LNZ100. There are a number of therapeutics in development and approved for presbyopia and LNZ100 is the only formula that uses aceclidine. Can you talk to us a little bit about what that means from an MOA perspective, safety, differentiation of the profile overall and duration?

Absolutely. So to maybe start that and orient you, important to realize what the MOA of these products is, it's very straightforward. You want to make sure that you give somebody a small pinhole pupil. And it's known that, that pinhole pupil needs to be below 2 millimeters because that's when you really see that depth of focus increasing. And with that near vision improve. So I think small pupil below 2 millimeters translates in 2, 3, 4, 5 lines of near vision improvement. Now there's 3 molecules, [indiscernible], that's the class of drugs that can actually give you a small pinhole pupil, aceclidine, pilocarpine, carbachol. The founders of what's now LENZ Therapeutics were the first ones to come up with this idea, and we're able to pick the best, in fact, the only molecule that can effectively get you into a small pinhole pupil without driving side effects. And the reason for that is that aceclidine is the only pupil selective miotic. So what that means is that there's 2 muscles in your eye that are relevant to look at. One is the iris sphincter. That's the muscle that controls the size of your pupil. So you want to stimulate that to get to a small pinhole pupil. And there's a second muscle called the ciliary body that ties the lens to your retina. That's the one that you want to avoid because if you overstimulate that, your lens moves forward in your eye and you get what's called a myopic shift, your distance vision blurs. So yes, maybe you got better near vision, but now you're left with blurry distance vision. It can also drive more serious side effects that clearly you want to avoid. So with the aceclidine being the only pupil selective miotic, it's effectively the only product that now in clinical data, and it's available now for all 4 products. It's the only product that can get people's pupils to below 2 millimeters. We had 233 out of our 234 patients in our Phase III studies to below 2 millimeters and keep them there for the full 10 hours. It's a very different profile for VUITY and all the other products are like VUITY. And that translates into a very different efficacy profile. If you look at our efficacy profile at -- we had 71% of our participants had at least 3 lines of near vision improvement, 95% of them improving at least by 2 lines, which is clinically meaningful. So if we compare and contrast that against VUITY, those same numbers for VUITY at [ hour 1 ] with 25% versus our 71. At our 10, they had about 10% left, which is 40% for us. So our 10-hour data at 40% is actually better than VUITY'S peak efficacy. So 2 other products out there besides VUITY. One is called Qlosi, which is a low-dose pilocarpine product that's dosed twice. You look at that efficacy profile, again, very similar to VUITY. And then very recently, the Phase III data from Brimochol as a carbachol plus brimonidine product became available, again, almost the same as VUITY. So all those products, the minimum pupil size that they get to is about 2.3 and then very quickly, they leave that and are clearly outside of the window where you can drive near vision improvement.

Very helpful, very clear. Maybe we can move. We've hit regulatory differentiation from a mechanistic perspective and product phenotype. Let's talk commercial. So you've been pretty clear in quoting a $3 billion-plus market size. We appreciate there are about 130 million presbyopes and 4 million new incidents every year. Can you talk to us a little bit beyond the epidemiology, what goes into your assumptions for that $3 billion-plus figure, how you get there? And then beyond that $3 billion, are there any avenues to exceed that?

No, good question. And frankly, one where we got a little bit of pushback and I thought we'd being overoptimistic, but actually that we're being too conservative. So let me walk you through that. 128 million presbyopes in the U.S. alone. And this is a self-pay product. So the first cut that we make is saying that, okay, people need to earn at least $100,000 individually to be able to buy a product like this. So that takes the 128 million down to 23 million. Then we've done a lot of research in how eager are people to try out a product, a presbyopia eye drop. On average, that's 60%. There's groups in there that are over-indexed into the 80s and 90s, and we'll talk about that later. But on average, 60% willing to try. So that takes that 23 million to, let's call it, 13 million. Then we know from our studies and elsewhere that people have used the product, and we ask them, do you want to continue to use the product after the study, 75% says yes. So 75% out of that 13 million gets you to about 9 million. Just for the fun of it, we take another 1 million out. So that's 8 million ultimate users long term. So 6% penetration out of the 128 million. So the second factor to get to the $3 billion is obviously how often are they going to use it? This is where we take the biggest haircut, frankly. Again, if we ask people that have been in our study, how often do you think you would use that product? They say 5 to 7 days a week. If we do the same with large surveys, where we give people the product profile that we have and tell them that this is an eye drop for presbyopia, how often would you use it? Same numbers, 5 to 7 days a week. So that would translate into about 10 refills a year. But again, this is where we go very conservative and say, it's one thing to put that into a survey, something else to actually buy it. So let's cut that in half. So rather than 10 refills, 5 refills a year, which would be 3 days a week of use, 42% refill rate. And then the third and last element is obviously price. We've not guided on price, but what we know is that VUITY actually had a phenomenal launch, and that price point was about $79. So at that price point, they had 150,000 consumers going out buying actual scripts sold. So it's fair to assume that the $79 price will be around where we will price. So if you take 8 million users times 5 refills a year times a $79 price, that gets you to the $3 billion. So that's obviously U.S. only. That's at a low refill rate. That's ignoring the 4 million presbyopes that are coming or joining our forces every year. It's also ignoring anything ex U.S. So a lot of additional upside beyond that $3 billion in our mind.

So that's going to require, especially if you're wrong on the more conservative assumptions that requires a pretty big commercial sales force or at least, I should say, a thoughtful and strategic one. So can you talk a little bit about investments made to date? What's left between now and August 8, PDUFA, estimated PDUFA? And what do you have yet to kind of build out and get going before launch?

Yes, fair question. So let me begin at the end, very little left to do. Almost of our complete sales force has been hired. We're hiring last final physicians this week actually. But how do we get there? It's a sales force of 88 salespeople in the field. We have 10 inside salespeople that we already have hired. So what we did probably about 2 years ago now is actually look at that VUITY launch and find which doctors represented 85% of the VUITY scripts. So that's obviously -- those doctors are the ones that you want to go after. It's about 15,000 of them. And then we start to map that out and how do you get territories that are evenly based and give reps the same amount of opportunity to do well. So that got us to those 88 territories that we will serve with our reps and then the white space, the Montanas of this world is what we're focusing on with our inside sales. 88 reps is a very benchmarked, very well benchmarked number. If you look at Tarsus that I know many of you will be familiar with. They launched with 86 reps. VUITY back in the day had about a little over 90 reps. So very similar number. What's different with VUITY is that our call point will actually be optometry. So VUITY or AbbVie focused the sales force on ophthalmology. That's what the rest of the back was focused on. The sales actually or the scripts came through optometry, 80% optometry. So despite the fact that they were on the wrong call point, they were driving 3,000 new scripts a week through optometry mostly. So we go to optometry mostly, 80% of our reps will go there. VP of Sales came over from AbbVie. He launched VUITY, joined us about 2 years ago because he knows the market, sees the opportunity, but wants to do it with a great product. We hired our DMs late last year -- sorry, our IDs late last year, then DMs very early this year. And like I said, we had over 8,000 applicants for the 88 field positions, 80% are filled. We're filling the last ones this week. So what that means is that by July 1, our sales force will be ready and trained up for a potentially earlier approval. And I don't think that that's going to come, but we want to be there anyway, but being ready for August 8 and being able to do the sales cycle.

Big effort.

Big effort, yes.

Interesting change in energy, I'm sure, at the company as well. You -- in your recent Commercial Day, you were pretty clear about 3 very specific customer segments that you were targeting as part of your initial marketing plan. Can you talk to us a little bit about those 3 segments?

Sure. Yes. So I mentioned a little bit earlier, 128 million presbyopes, on average, they index 60% in willingness to try. That's the top box out of a box of 5. That's a lot to target. So what you want to do early on with especially your DTC, but also pointing your doctors to the groups that you know are over-indexing in willingness to try, which means that they're in the 90 percentages. There's 3 very distinct groups, easy to identify people that wear in contact lenses. There's 47 million people that wear contact lenses in the U.S. That number drops off a cliff at 45, 47 because people become presbyopic and now they need to wear an extra pair of glasses, which defeats the use of wearing contact lenses. With this drop, you can stay in contact lenses. We've had many contact lens wearers in our study, and this works perfectly together. So that's group #1. It's a very valuable group for optometry as well. So they want to keep them in contact lenses. Group # 2, people have had LASIK. Over 10 million people have had LASIK. And many of them are now slowly becoming presbyopic and they start to say, my LASIK wears off and optometrists [indiscernible] no, it's nothing to do with LASIK, you becoming presbyopic. But same thing. They've paid money to be without glasses and now they need to wear glasses. So highly motivated to do something different and stay out of glasses. Again, these drops work with LASIK very well. And then the third group, we used to call them the MediSpa people. I think it's now calling the beautiful people or the lifestyle people, but people that focus on appearance, whether it's people that indeed go to a MediSpa or just want to remain beautiful and wearing reading glasses doesn't fit with that. They over-index into like the 95%. So 3 groups, very easy to identify for a doctor. Those are the groups that will go after first. It doesn't mean that use outside of those 3 groups is not happening. It works for everyone. So it's definitely going to be patients or consumers outside of those 3 groups as well.

You touched on this a little bit in an earlier question. But anything else you'd highlight vis-a-vis other competitor product launches that you would do differently? You talked about call point differentiation in terms of the way that we are approaching it versus the way that AbbVie approached it with VUITY. Anything else you'd flag or feel like that covered.

Maybe the last thing, and I have a lot of respect for companies like AbbVie and having grown up at least watchful even in Pfizer. These companies know what they're doing. Like they become so big by doing good stuff consistently. So we've learned a lot from VUITY and a lot of things that will -- that we've assimilated. There's also a couple of things that we'll do differently. Like VUITY when they turn on DTC and was effective because they doubled their amount of scripts from 3,000 to 6,000. But their version of DTC was for $36 million. Commercial is on the hallmark channel. We feel that that's probably not where our target patients live. That's not where they get their information and the people that watch data and TV is maybe -- or maybe not the group that you want to go after. So we'll do that differently. We'll spend the same. We're actually spending more on DTC. I think about it, $80 million, $75 million to $80 million in year 1 on DTC, but much more in line with how you see brands being built today. So digital, our consumers live on Reddit, YouTube, Facebook, which they're a little bit older, Instagram, TikTok comes up. That's where you're going to capture them. We'll have a big A-lister celebrity, micro influencers below it, lots of different very targeted commercials that you'll see popping up on your phone that you can actually now read without dropping.

As someone squarely in the target demographic, I'll look forward to that. Maybe we could talk -- it's actually a good segue to the cash pay model. So maybe you could talk a little bit more about the cash pay model for LNZ100 as you see it. And very specifically, if we could go into some of the advantages and considerations, this concept of quality of revenue, maybe it's something that you can touch on lack of formulary reimbursement, anything about gross to net incentive or lack thereof for generic pharmacy switch. If you could package all of that, I'd be interested to hear across all of those elements.

Yes. So this is indeed a self-pay product, and we like that a lot. It has a lot of advantages, especially in today's world. So think of it, like we said, let's hypothetically say it's an $80, what we call retail price. So it's not a WACC price, but retail to net makes for a very healthy, quick revenue stream. So self-pay products, from a P&L point of view, what that will mean is you can think about a 25% or so retail to net spread. So $60 in this example, net to lens from the very first script because we don't have to get to lives covered, insurances, all of that, which normally takes at least a year or so for a company to work through. And during that time, you can, one, not fully focus on commercialization because every patient that you drive in, you need to buy down. So it's costing a lot of money. In our case, the very first script that gets bought hits our bottom line in a very meaningful way. So again, we like that aspect of it. It also indeed insulates us from many of the dynamics that we're currently seeing. No PBM negotiations, no MFN questions, no PBM parts in the insurance companies. It's a very nice insulated stream, something that we're hearing spec pharma companies now also talk to us. It's not the same, obviously, as a GLP-1 value stream, but it definitely has elements of it. It's got the same element of you're selling this more to a consumer than to a doctor, if you will, you can capture the supply chain yourself or capture the revenue stream yourself, you can be flexible with your pricing. So all things, again, that we like about the fact that it will be a self-pay product.

Great. And maybe on that topic of consumer appreciation or customers' perception of the product, stickiness is a concept that matters a lot. Can you talk to us a little bit about that? Why is stickiness important in a market like presbyopia specifically? And what do you intend to do to ensure that stickiness?

Yes. No, 100%. Like if I think about the proof points for LENZ over the next quarters year, I think they're twofold and they're going to come really quickly. So the first one, and let's call it just arbitrarily Q1 of next year, we'll all be watching what's our [ NRxs ]. Are we getting patients on script? Are we getting that first script done? And then it's going to be great without people refilling because that's where VUITY fills. Yes. VUITY had a great launch, 150,000 scripts in year 1, which would be over 100 million if they had a half decent refill rate, which they didn't. So it dropped off a cliff and got stuck at like 20 million or 25 million. So those 2 are the 2 that we're going to follow -- all of us are going to follow widely. I think that's going to be different with us for a couple of reasons. One, the biggest one, the product works. So again, I don't want to go through the numbers, but the product is about 3x more efficacious, works at least 3x longer, but also for a 6x larger population. So that efficacy is there. We can pretty much guarantee if you're a presbyope able to drop a product in your eyes, you'll be able to see a text message because 95% improves at least 2 lines. Then it all comes down to do you like it? Are you going to buy it? So we're going to sample very, very heavily. We'll have a 5-day sample pack. So it's not going to cannibalize on our ultimate revenue because we want people to experience it. When we look at our clinical trials, the Phase II and the large Phase IIIs, there's a lot of people that literally went, wow, like how does this work? And for those that have seen our Commercial Day, we had a couple of patients in there that went like I was skeptical going in, like how can an eye drop improve my near vision, but it did. It was surprising. It was crazy. That's what people -- that's how people describe it. So we want them to sample. And what I believe is that if somebody from a sample goes to a script, different than with VIUTY, that's somebody that liked the product because VIUTY sampled a very -- initially to sample a little bit, but they realized that product wasn't very effective. So they literally sent that reps back in and pulled the samples out of the doctor's office. So now they're only selling the promise of an eye drop to treat near vision. People bought in on the promise, paid $80 and didn't work. So I think the fact that we have heavy sampling means that the moment that we see NRxs, our chance that those are sticky and people refill is a lot higher. So that's what we'll be watching for. I think a year from now, we'll know a lot more.

I was going to put you on the spot a little bit unplanned and ask you to try to give a time framework for when you know whether the stickiness has stopped.

I think Q2 2026. That's where I feel is we'll start to see it. It will not have been fully played out. But if you don't see it in the second quarter, then yes, we'll need to start figuring out what's driving that because what I didn't touch on is how the launch from a timing perspective will go. So let's assume August 8 approval. Sales force will start doing their calls. We're guiding to product in the market in Q4. That delta sits because this is such a large volume product, and we're obviously having a lot of product made. We actually started producing in February of this year. So we'll be sitting on a lot of bulk. We need final label to do the final packaging on it and then get that product into the market. So that's what's driving that gap. So Q1 will be the first full quarter. Again, we should see NRxs then. And Q2, we should start to see how that translates into our NRxs.

Application. And you also just touched on this briefly as it pertains to your Feb production start. But supply chain and manufacturing, can you give us a little primer on how have you invested in inventory? What does your supply chain look like? How do you think about that, again, moving forward, depending on the demand curve that we had.

So I'll start by saying before I lay out the supply chain that we're duty-free and free from tariffs. And we look very smart because we figured that out back in November of last year, just as part of our normal commercial prep and how the supply chain works is our API is produced in the U.S. and our IP sits in the U.S. So it's deemed a U.S. product because the fill/finish, even though that's happening in Germany, is not seen as a major value driving step. So API gets sent to Germany. We produce these little low-field seals, many of them. And once we have them finally -- once we have the final packaging done, we ship them back into the U.S. Again, as a duty-free product. We're producing ample products to make sure that whatever our forecast is, and that's a number I'm not going to share, that we can do much more of that. This plant can do large, large volumes out of redundancy, not for a capacity reason, but just for a security reason. We're actually also putting a second and third site, state site online in 2026, 2027. That's a supply chain well tested. We actually produced our commercial products -- sorry, our clinical product at commercial scale already and obviously commercial now.

And in terms of geography of the state sites, how does that play into the equation? Does it matter? Do you have strategic places within the U.S. or...

No, it's a one site API production, but also there, we're putting second and third sites, online. Now the moment that the product comes back into the U.S., it obviously goes to 3 different wholesalers. There's a separate group that does all the samples. So that's where it gets spread up.

Great. You touched on tariffs, again, very clear. Maybe another area that we could touch on is just product protection, specifically IP, your 3 concentric rings. Let's dive deep on that.

Very good. The product is very well protected. And indeed, you can think of it as like 3 elements there. So the first one, recycled in is a new chemical entity for the U.S., which means that upon approval, we expect 5 years of data exclusivity. So right off the bat, 5 years that nobody can do anything. Then the core IP portfolio, we have 8 granted patents in the U.S. now, take that protection to 2044. So from today, 20 years of IP that sits both on medical treatment, so aceclidine for the use in presbyopia and formulation patents. That whole portfolio is very strong. You can imagine that when we took the company public last year and before that, Series B, we had all the [indiscernible] and the coolies and you name them kicking the ties on it, all advising their clients that, yes, this is a very strong IP portfolio that's worth investing in. That block is IP block. There's like 10 or 12 patents that are under review that will continue to strengthen the IP portfolio. And then on the back end, because -- but this is not a molecule that will be genericized in a traditional way because it's a self-pay product. So there's no insurance company that when a generic is available, would drive that switch. Whoever wants to come in 2044 or beyond, would need to do the same and need to build the same brand, which we know is not an easy feat and something that just drives a very nice long tail, something that we realize is also seen as very interesting by Big Pharma.

Great. Brand equity, if you will, as you think about it. Okay. So maybe now shifting since Dan isn't up here on stage with us to more of the financial set of questions. You're well funded, and you've publicly messaged that. You've messaged, in fact, good funding through positive operating cash flow. Can you tell us a little bit about expectations for commercial uptake versus spend in your early quarters of launch? And then as you think about cushion, discretionary spend, use of capital, what is the framework you use internally to plan for strategic...

Let me start with the first one. We took the company public about 5 quarters ago now. And from the moment that we went public on that first call, we guided to the fact that we could indeed get to cash flow positivity with the cash that we then had. Since over the last year, we strengthened the balance sheet with about $50 million. We did one-off deals with investors that really wanted to put money into the stock and build positions. And then we had some nondilutive cash coming in through licensing deals. That's why we're guiding now, and we've actually taken our guidance up to $190, 1-9-0, million cash at PDUFA date, and we expect that to potentially even grow. So like I said, we were guiding to be able to get to cash flow positive with a margin back then. We've added $50 million to the balance sheet. So we continue to feel more and more confident that a very real feasibility, if you will. So what does the P&L look like? We're very targeted tightly run company by design. So if you think about our P&L post launch, like I think I mentioned earlier, we'll be spending about $100 million on the commercial side of the house. So that's about $25 million on the sales force. So the 88 reps with that team. These are not oncology reps. These reps, you can look it up because they obviously are subscription are out there. They make between $110,000 and $150,000 plus bonus. So that gets you to about a $25 million cost sales force, which leaves logically call it $75 million to $80 million for marketing, which is mostly DTC. That DTC is going to start in Q1 of 2026. Then on top of that, on the G&A side, think of it as roughly $25 million. Like I said, it's a very tightly run company. We have no R&D by design and not a lot of additional overhead on IP or other areas. So we look in some elements, very similar to a company like Tarsus on the commercial spend, very different on the G&A side of it.

And maybe last point, just as you think about capital allocation, very clear on no R&D spend and that being intentional. How do you think about over the evolution of the next couple of years as you're in the unique position of being a not yet commercial biopharma company staring right at profitability, not too far from now. How do you think about the offensive, BD in licensing versus plowing some money back into R&D in the future?

Great question and something that we're definitely focused on. So if I think about that from a timing perspective, so we feel that LNZ100 can be and will be a great cornerstone molecule for a larger portfolio. What kind of portfolio looks like? You can do more front of the eye, you can go back of the eye even or say, no, we're a lifestyle company that knows how to sell a consumer product in a self-pay market, but it's still a script. So that's sort of that lens, no pun intended, that we look at how do we expand the portfolio. That's something that, in my mind, will be M&A BD driven. Those would need to be products that we can add to the portfolio, let's call it 2027 time frame. So let's show success in 2026, but then have products available to add to the portfolio in the 2027-ish time frame. And again, that would all be M&A BD driven.

Great. Good. Well, thank you. We've got about a minute left. Anything keeping you up at night that we have not covered that you should touch on or any final comments?

Very little keeping me up at night. We have a phenomenal team, which is great. I mean this is a big thing. It's a lot of execution. So yes, we're spending as we should a lot of time on it. But this team has done it before. And the nice thing about it, and again, by design, I built the company this way, it's a one-product company. So there's no A or B teams. There's no -- we don't have to prioritize. This is what we do. One piece that we didn't touch on is that we are obviously highly focused on licensing -- sorry, commercializing the product in the U.S., but we'll license ex U.S. We have a partnership in place with China that we did early because they had to do their own clinical trial. That clinical trial read out 9 months or so ago. It's carbon copy from our data, which is obviously, again, very validating, different country, different company, different population, same results. About a month or so ago, we announced a deal for Korea and Southeast Asia, highly competitive process. They can leverage our U.S. dossier and U.S. approval. So it's the right time to do that then. And that's how we continue to look at Europe, Middle East, Africa, Canada, Latin America. Those will all be territories that over time will come online, but all through partners.

Great. Thank you for joining us. Appreciate it.

Great. Thank you. Yes, thank you.