IPO Preview: Epizyme

May.30.13 | About: Epizyme (EPZM)

Based in Cambridge, MA, Epizyme (NASDAQ:EPZM) scheduled a $60 million IPO with a market capitalization of $375 million (excludes 6.4 million stock option shares) at a price range mid-point of $14, for Friday, May 31, 2013.

  • S-1 filed May 21, 2013
  • Manager, Joint Managers: Citi; Cowen; Leerink Swann
  • Co Managers: JMP; Wedbush PacGrow

SUMMARY

EPZM appears to on the road to developing a drug for certain types of cancers, including hematological cancers and solid tumors. It looks like EPZM's objective is to treat not only the symptoms but also the underlying causes of certain types of cancer.

HISTORY

Strong collaborators

EPZM was founded in November 2007. EPZM has entered into therapeutic collaborations with Celgene Corporation and Celgene International Sàrl, Eisai Co., Ltd., and Glaxo Group Limited [an affiliate of GlaxoSmithKline (NYSE:GSK)], that has provided EPZM with $120 million in non-equity funding through March 31, 2013.

Strong investors

Principal investors are funds managed by New Enterprise Associates, Kleiner Perkins Caufield & Byers, Bay City Capital and MPM Capital, as well as an affiliate of Celgene. As of March 31, 2013, EPZM had $85 million in cash and cash equivalents.

VALUATION

EPZM's price-to-book value is on the high side at 5.3 for a biopharma in clinical trials, and EPZM is only in Phase 1-2 trials.

On the other hand, EPZM says it is the first company in its category to have Phase I-II trials and, if successful, may be able to put certain types of leukemia into remission. EPZM's approach is based on small molecule therapeutics.

Post-IPO EPZM will have 37% of its market capitalization in cash. EPZM has $60 million in accumulated deficits, which is relatively low for a biopharma perhaps poised for a big breakthrough.

CONCLUSION

If EPZM's clinical trials prove the lead candidate can put leukemia into remission, then EPZM has a bright future. EPZM has received $120 million in collaboration revenue from major partners and is funded by leading VC firms. Nevertheless, at 5.3 times book value it seems EPZM is fairly priced in the short term. However, could edge up from the IPO price.

To put the above conclusions and observations in context, the following is reorganized, edited, and summarized from the full S-1 referenced earlier:

BUSINESS

EPZM is a clinical stage biopharmaceutical company that discovers, develops and plans to commercialize innovative personalized therapeutics for patients with genetically defined cancers.

EXZM systematically identify the genetic alterations that create cancer causing genes, called oncogenes, select patients in whom the identified genetic alteration is found and then design small molecule therapeutics to inhibit the oncogene.

The clinical development plan for each of EPZM's product candidates is directed towards patients with a particular genetically defined cancer.

histone methyltransferases (HMTs)

EPZM has built a proprietary product platform that is used to create small molecule inhibitors of a class of enzymes known as histone methyltransferases, or HMTs.

HMTs are part of the system of gene regulation, referred to as epigenetics, that controls gene expression.

In 2011, EPZM's scientists defined the 96-member HMT target class, which is referred to as the HMTome. Genetic alterations can result in changes to the activity of HMTs, making them oncogenic (potentially cancerous).

Role of Epigenetics and HMTs

Epigenetics is a regulatory system that controls gene expression. When properly read and translated, genes provide the blueprint for making the individual proteins of the body.

Epigenetic control of gene expression relies on the precisely orchestrated activity of a collection of enzymes. When the function of these epigenetic enzymes is altered, gene expression is changed in ways that often leads to disease.

HMTs are a type of epigenetic enzyme that regulate gene expression by adding marks, called methyl groups, to specific locations on chromosomes, a process known as methylation.

Oncogenic HMTs inappropriately mark these locations, driving multiple types of cancer, including hematological cancers and solid tumors. Out of the 96 enzymes in the HMTome, EPZM has prioritized 20 HMTs as attractive targets for personalized therapeutics based on their oncogenic potential.

First to conduct clinical trial of an HMT inhibitor

EPZM believes it is the first company to conduct a clinical trial of an HMT inhibitor.

EPZM is conducting a Phase I clinical trial of the most advanced product candidate, EPZ-5676, an inhibitor targeting the DOT1L HMT, for the treatment of mixed lineage leukemia, or MLL-r, a genetically defined subtype of the two most common forms of acute leukemia, acute myeloid leukemia, or AML, and acute lymphoblastic leukemia, or ALL.

In the second quarter of 2013, EPZM expects to begin a Phase I/II clinical trial of the second most advanced product candidate, EPZ-6438, an inhibitor targeting the EZH2 HMT, for the treatment of a genetically defined subtype of non-Hodgkin lymphoma. EPZM also has a pipeline of other HMT inhibitors that are in preclinical development.

LEAD PRODUCT CANDIDATES

EPZ-5676-DOT1L Inhibitor

EPZ-5676 is an intravenously administered small molecule inhibitor of DOT1L. epzm initiated a Phase I clinical trial of this product candidate in September 2012. Subject to enrolling patients on the planned schedule, EPZM expects to announce trial results, including an assessment of any early indication of therapeutic effect, in the second half of 2013.

Epzm is developing EPZ-5676 for the treatment of MLL-r, an aggressive subtype of the two most common forms of acute leukemia, ALL and AML. There are no approved therapies specifically indicated for MLL-r.

The primary objectives of the trial are to evaluate the safety and tolerability of EPZ-5676 and to determine its maximum tolerated dose when administered as a 21-day continuous intravenous infusion to patients with relapsed or refractory hematologic malignancies.

EPZ-6438-EZH2 Inhibitor

EPZM is developing EPZ-6438 as an orally available small molecule inhibitor of EZH2 for the treatment of non-Hodgkin lymphoma patients who have an oncogenic point mutation in EZH2.

EZH2 is an HMT that can become oncogenic and cause non-Hodgkin lymphoma and a variety of other solid tumors. Two types of non-Hodgkin lymphoma, diffuse large B-cell lymphoma of germinal-center origin, or DLBCL, and follicular lymphoma, or FL, are particularly associated with an EZH2 point mutation. There are no therapies approved specifically for the treatment of cancer associated with an EZH2 point mutation.

In the second quarter of 2013, Eisai and EPZM expects to begin a Phase I/II clinical trial of EPZ-6438 for the treatment of patients with the genetically defined subtype of non-Hodgkin lymphoma caused by a point mutation in EZH2.

CLINICAL TRIALS

EPZM's Phase I clinical trial of EPZ-5676 is an open label, multicenter trial that has two phases.

The first phase is a dose escalation phase that will include some MLL-r patients. The second phase is an expansion phase utilizing the dose identified in the first phase and will only include MLL-r patients. The primary objectives of the trial are to evaluate the safety and tolerability of EPZ-5676 and to determine its maximum tolerated dose when administered as a 21-day continuous intravenous infusion to patients with relapsed or refractory hematologic malignancies.

Secondary objectives of this trial are to:

• determine the process by which EPZ-5676 is distributed and metabolized in the body, which is referred to as pharmacokinetics;

• assess the biochemical and physiological effects of EPZ-5676 on the human body, which is referred to as pharmacodynamics, including methylation in peripheral blood mononuclear cells and leukemia cells; and

• evaluate any early evidence of anti-tumor activity in patients with MLL-r.

As of May 20, 2013, four patients have completed dosing in the dose escalation phase of this trial. Two sites, Memorial Sloan-Kettering Cancer Center and Sarah Cannon Research Institute, are currently enrolling patients. One of the patients in the second dose cohort of the dose escalation phase of the trial was diagnosed with ALL and had the MLL-r genetic alteration. In this patient, EPZM observed partial DOT1L target inhibition after treatment with EPZ-5676.

Based on preclinical data, EPZN did not expect partial inhibition to have a biological effect. However, this patient experienced a 90% reduction in circulating leukemic blast count in her blood by the fifth day of EPZ-5676 treatment. This reduction is consistent with a biologic effect of treatment, although it does not necessarily demonstrate a clinical effect.

Leukemic blasts are precursors of white blood cells and cause acute leukemia. By the fifth day, the patient experienced resolution of fevers that were believed by the investigator to be related to leukemia. EPZ-5676 therapy was terminated in this patient on day 10 due to disease progression. The patient experienced a single episode of transient hypertension that was possibly related to the treatment with EPZ-5676. The dose escalation phase is continuing, and we expect to add additional cohorts at higher dose levels.

EPZM expects to initiate the expansion phase of this trial in the second half of 2013 using the dose selected in the dose escalation phase.

COMMERCIALIZATION

EPZM has not yet established a sales, marketing or product distribution infrastructure because the lead candidates are still in preclinical or early clinical development.

MANUFACTURING

EPZM generally expects to rely on third parties for the manufacture of companion diagnostics.

EPZM is currently collaborating with Abbott for the development of a companion diagnostic for use with EPZ-5676 and with Roche for a diagnostic for use with EPZ-6438

INTELLECTUAL PROPERTY

EPZM has filed a patent application covering the composition of matter of EPZ-5676 which, if issued, is predicted to expire in 2031. EPZM has an issued patent covering the composition of matter of EPZ-6438 which expires in 2032.

COMPETITION

EPZ-5676: there are no approved therapies specifically indicated for MLL-r. There are, however, currently approved therapies for acute leukemias in general and a variety of other malignancies. The current standard of care for treating MLL-r depends on the specific lineage of the leukemia. Patients with AML and ALL typically are treated with intensive multi-agent chemotherapy and high risk patients who enter remission and have a matched donor often receive an allogeneic stem cell transplant (bone marrow transplant).

EPZ-6438: no therapies are approved specifically for the treatment of tumors associated with the oncogenic mutation of EZH2. The most common treatments for DLBCL and FL are chemotherapies, usually combined with the monoclonal antibody Rituxan®. While Rituxan® is currently the only therapy with specific indications for DLBCL and FL, a number of other widely used anti-cancer agents have broad labels that include non-Hodgkin lymphoma.

USE OF PROCEEDS

EPZM expects to net $53 million from its IPO.

As of March 31, 2013, EPZM had cash and cash equivalents of $85.0 million.

EPZM estimates that it will use the net proceeds from this offering, together with existing cash and cash equivalents, as follows:

• $7.0 million to fund the costs of Phase 1 clinical development of EPZ-5676;

• if EPZM exercises its opt-in right to co-develop, co-commercialize and share profits in the United States for EPZ-6438, the $8.0 million to fund a portion of its share of U.S. development costs for this product candidate;

• $30.0 million to fund research and development to build a product platform and advance the pipeline of preclinical product candidates; and

• the remainder for working capital and general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This EPZM IPO report is based on a reading and analysis of EPZM'ss S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.