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Epizyme (NASDAQ:EPZM) made its public debut on Friday, May 31st. Shares of the clinical stage biopharmaceutical company focused on personalized therapeutics for patients with genetically defined cancers, ended their first trading day with gains of 53.7% at $22.99 per share.

Shares continued to gain ground in Monday's trading session, setting highs of $30 per share intraday. Investors are really enthusiastic about the prospects for this relative new biopharmaceutical company which has collaborations with leading companies in the industry.

The Public Offering

Epizyme is a clinical stage biopharmaceutical company which focuses on the discovery, development and commercialization of personalized therapeutics for patients with genetically defined cancers.

Underlying the treatment is a personalized therapeutics to develop small molecule therapeutics which inhibit the oncogenes which cause the cancer.

Epizyme sold 5.14 million shares for $15 a piece. Note that the company itself sold all the shares with no shares being offered by selling shareholders. The public offering values the equity of the company at $402 million.

Epizyme raised $77 million in the offering, up from the $60 million which the company planned to raise initially. Before, Epizyme was planning to sell just 4.28 million shares in a $13-$15 price range. Given the strong demand for its shares the company and its bankers decided to both raise the size and the price of the offering.

Some 19% of the total shares outstanding were offered in the public offering. At Monday's closing price of $27.99, the firm is valued around $750 million.

The major banks that brought the company public were Citigroup (NYSE:C), Cowen and Company, Leerink Swann, JMP Securities and Wedbush PacGrow Life Sciences.

Valuation

Epizyme has been founded as recent as 2007 and has been lead by an established management team. The company has collaborations with Celgene Corporation (NASDAQ:CELG) and Glaxo Group Limited, part of GlaxoSmithKline (NYSE:GSK), among others. Combined these firms have provided $120 million in non-equity funding.

Epizyme is the first company to conduct a clinical trial of a histone methyltransferases inhibitor (HMT). The company is conducting a Phase 1 clinical trial of its most advanced EPZ-5676 product candidate which targets mixed lineage leukemia.

A second Phase 1 clinical trial for its other candidate EPZ-6438 is aimed to target the treatment of non-Hodgkin lymphoma. Epizyme holds the commercial rights in the US for EPZ-5676, while Celgene holds the rights in the remainder of the world. For EPZ-6438 Eisai holds the worldwide rights while Epizyme's has an option on 50% of the rights in the US.

Besides the two main product candidates, Epizyme is working with Glaxo Group on the development of three HMT inhibitors for which GSK holds the commercial rights. The milestone payments from this deal will be crucial to provide additional funding for the development of EPZ-6438 and EPZ-5676 to avoid dilution of the current shareholder base.

The company received $120 million in non-equity funding thanks to the therapeutic collaborations with the companies mentioned above. The collaborations furthermore include $1.0 billion in potential milestone payments and well as royalties and profit sharing.

For the year of 2012, Epizyme generated annual revenues of $45.2 million, up from $6.9 million a year earlier. Net losses narrowed from $21.0 million to $0.7 million in the meantime.

Revenues for the first quarter of 2013 rose by 57.1% to $8.8 million. As the company boosted Research & Development spending to $13.4 million it was forced to report a net loss of $7.5 million compared to a loss of $5.5 million the year before.

At the end of its first quarter for 2013, the company operated with $85.0 million in cash and equivalents. The company does not operate with any debt. Factoring in the $77 million in gross proceeds, the company operates with approximately $150 million in net cash. This values operating assets of the firm around $600 million, or 13 times last year's annual revenues.

Investment Thesis

As noted above, the public offering of Epizyme has been a great success. Shares currently trade at roughly double the level of the midpoint of the preliminary price range. The strong offering, solid opening day returns and strong action on Monday have made this public offering a home run for investors.

Obviously there are many risks to public offering investments, especially in the biopharmaceutical industry. Epizyme does not have a working product at the moment, and not for the foreseeable future. It's most advanced product is still in clinical phase 1 of testing. The operating losses, risks related to reliance upon just one or two products, its key partners, and costs associated with further development of its products, are among the key risks.

On the other hand, Epizyme has managed to partner with many top notch names in the industry in recent years, operating losses are limited, and the firm has quite some financial resources following the successful public offering.

While it is obvious that the public offering has been quite a success, it is hard to evaluate the prospects for Epizyme at this stage. After shares have doubled, shareholders have valued the operating assets of Epizyme at around $600 million in a bet on the favourable outcome for the company's prospects.

While I applaud the limited losses and the extensive partnerships, I think there is still too much uncertainty to attach a valuation to Epizyme's future prospects. While other investors are really enthusiastic about the company's shares and its products, I remain on the sidelines.

For now I will await any news flow about collaborations, milestone payments or clinical trials of its key products.

Source: Epizyme - Investors Are Wildly Enthusiastic About Future Prospects Of This Recent IPO