I just finished listening to the CEO of Lenz Therapeutics fireside chat at the Cantor conference this morning, during which he walked through the company’s internal forecasts for peak sales of LNZ-100. And I have to say, I think they are spot-on with their thinking. Everything I heard was consistent with what I’m modeling, leading me to believe the stock is under-valued at $21.75/sh today.
Here are some slides from the recent Investor Deck.
Here is my thinking for peak global sales of LNZ-100.
I’m not going to argue with Lenz’s market research. They are the ones who did the work and ran the clinical trial. The wildcard above is the penetration rate. I came up with 20% based on back-calculating penetration rates for the leading dry eye products, a comparable market. Dry eye affects around 35-40 million Americans, roughly a third the size of the presbyopia market. It’s about a $5 billion market based on Internet searches and (recent and older) investor presentations I’ve seen from companies with dry eye products (ALDX, OCUL, KALA). Restasis peaked at around $1.4 billion before losing patent protection. Refresh (AbbVie) is around a $400 million product. Xiidra (Bausch & Lomb) is expected to do around $500-600 million in peak sales. Systane (Alcon) did $325 million last year.
So, when considering the market size and calculating penetration rates for these key drugs, I conclude that 20% is very reasonable. This also considers the highly competitive nature of the dry eye market, which includes readily available OTC drops. The math gets me to $700 million in U.S. sales and $865 million worldwide.
So then the next question becomes, what is that worth?
We have great precedent on ocular drug deals. Bauche and Lomb acquired Xiidra for $2.5 billion in June 2023, which equates to 4X estimated peak sales. AbbVie acquired Allergan, maker of several eye care products (yes, I know they also made Botox®) for $63 billion in 2020, roughly 4X FY 2019 sales of $16 billion. In April 2023, Astellas acquired Iveric Bio for $5.9 billion. At the time, peak sales forecasts for Iveric’s ophthalmology product suite, lead by GA drug, avacincaptad pegol, were $1.6 billion - this equated to a 3.7X multiple.
I found the graphic below on X. It shows that the median forward revenue multiple for commercial deals is around 4.4X and roughly 3.3X in 2024.
Big pharma has shown interest in this area before. In late 2016, Novartis paid $465 million to acquire Encore Vision. In 2022, Viatris acquired Oyster Point Pharma and dry eye product Tyrvaya for $450 million. Alcon acquired KALA’s Eysuvis for $60 million in 2022. Current market sentiment seems optimistic for these types of assets, as evidenced by the high interest in the BoL auction.
So, I’m comfortable pegging LENZ's value at 3X peak sales - at the low end of the above range and consistent with what we’ve seen so far in 2024. Based on my modeling, equates to $2.6 billion. Of course, we must adjust this value to match the approval odds. LENZ filed the NDA in August 2024. We should hear about acceptance and a PDUFA date by the end of October 2024. At Cantor, the CEO commented that this was “Not a complicated submission” and that the trials were designed based on the precedent set by Vuity. I place the odds of approval at 75%. That gets me to $1.9 billion in value.
In terms of present value, I further adjust down this $1.9 billion using an aggressive 20% discount rate until the PDUFA in August 2025, which gets me to $1.6 billion. Based on ~32 million fully diluted shares outstanding, LENZ's fair value looks around $50 per share.
I am long with a ~4.0% position.
Cheers,
JNap
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Approved and now $36/sh
$1B MCap