Epizyme (EPZM), a May 2013 IPO, has been at the forefront of a cancer drug discovery revitalization that's been taking the biotech industry by storm. The company's clinical stage therapeutics focus heavily on developing small molecule antagonists of histone methyltransferases (HMTs). These chromatin-modifying enzymes regulate gene transcription, as well as help maintain genomic integrity and cellular identity. Genetic mutations and/or overexpression of these HMTs are increasingly being identified as a common hallmark for a variety of cancers. For Epizyme, selective targeting of these epigenetic modulators in diseases such as MLL and non-Hodgkin's lymphoma has brought pharmaceutical giants GlaxoSmithKline (GSK), Celgene (CELG) and Eisai Pharmaceuticals (ESALF.PK) to the table with over $120 million in non-equity funding thus far, and close to $1 billion in potential milestones. I suspect that these partnerships are a major reason why a biotech with only phase 1 programs has a market cap of nearly $1 billion, but I think the excitement of a set of novel cancer targets is also driving the stock price.
Epizyme entered into a collaboration with Celgene in 2012, granting the company an exclusive license to develop and commercialize inhibitors to the HMT DOT1L outside of the US, which includes the small molecule EPZ-5676 that's recently entered phase 1 clinical trials. Epizyme retains all resulting product rights in the US and will receive royalty percentages ranging from mid-single digits to mid-teens on net product sales. Celgene also has the option to license rights for other HMT target programs outside of the US, except those covered by Eisai and GSK.
Similarly, Eisai obtained an exclusive worldwide license to EZH2 inhibitors including EPZ-6438, the second of Epizyme's small molecule inhibitors to enter clinical trials. Epizyme is eligible to receive royalties in the mid-single digit range on net product sales outside the US, and mid-single digits to low double-digits in the US. Strategically, Epizyme retains an opt-in right to co-commercialize and share profits for any of Eisai's resulting licensed compounds in the US. The opt-in, if exercised, will terminate Eisai's royalty obligations, decrease future milestone payments by 50% and make Eisai eligible for a 25% credit of past development costs, to be leveraged against any future milestone payments. Eisai and Epizyme will then share equally in net profits and losses in the US.
Epizyme also collaborates with GSK, using GSK's sheer horse power to discover, develop and commercialize novel small molecule HMT inhibitors directed toward available targets from Epizyme's product platform. Covered by the agreement is GSK's option to obtain exclusive worldwide license rights to HMT inhibitors directed at up to three targets on Epizyme's platform. In the meantime, Roche Molecular Systems and Abbott (ABT) are developing companion diagnostics for both of Epizyme's drug targets.
These partnerships have supplemented Epizyme's cash position outside of funds raised through the IPO. The $900 million plus in potential milestone payments are also a great source of non-dilutive funding going forward, as well as a testament of the confidence that big pharma has in Epizyme's programs.
New Cancer Targets
Epizyme may be benefiting from their fresh approach to treating cancer, and have strong pre-clinical data demonstrating the benefits of HMT inhibitors in treating cancer. The HMT DOT1L has been shown to promote proliferation and development of MLL-r tumors by enhancing pro-oncogenic gene expression. Published data by Epizyme showed that EPZ-5676 acts as a potent and highly selective DOT1L small-molecule inhibitor, which leads to significant regression of pediatric malignant rhabdoid tumors in mouse models. Similarly, mutated EZH2 is highly associated with two types of non-Hodgkin lymphoma (NHL), diffuse large B-cell lymphoma (DLBCL) of germinal-center origin and follicular lymphoma (FL). In the lab, Epizyme showed that the EZH2 inhibitor EPZ-6438 kills lymphoma cells with EZH2 mutations but typically leaves non-mutant lymphoma cells intact. Although these are not the first epigenetic enzymes being targeted for cancer therapy-ZolinzaTM (vorinostat) and Istodax® (romidepsin) are histone deacetylase inhibitors approved for treating cutaneous lymphoma-they are the first HMTs to be tested by a company in clinical trials.
Current treatment options for these diseases include a combination of radiation and/or chemotherapy, and sometimes stem cell transplants when donors are available. If successful, these HMT inhibitors will allow Epizyme to carve out a small niche to provide alternative treatments for patients whose 5-yr survival rates, according to Epizyme are 5 to 24 percent for MLL-r patients, and 10 to 15 percent for patients with relapsed or refractory non-Hodgkin lymphoma who are not eligible for a stem cell transplants. These are patient populations that are in need of more effective treatments.
In June 2013, Epizyme initiated an open-label, phase 1/2 clinical trial with the EZH2 inhibitor EPZ-6438 in patients with a genetically defined subtype of non-Hodgkin lymphoma. Phase 1 of the study will find the maximum tolerated dose and monitor the effects of food on the bioavailability of drug. EPZ-6438 is orally administered twice daily on a continual basis. An estimated 154 patients are expected to enroll.
The second small-molecule inhibitor, EPZ-5676, which targets DOT1L for the treatment of mixed lineage leukemia, is currently in an open-label, phase I clinical trial. The primary endpoint is the maximum tolerated dose, and the secondary endpoints include assessments of safety, pharmacokinetics and anti-leukemic activity. This study is expected to enroll approximately 40 participants who will be given 21-day continuous intravenous infusions on 28-day cycles. In August 2013, EPZ-5676 received an orphan drug designation, which provides tax credit incentives, research and development grant funding, and reduced filing fees during development or at the time of application for marketing approval. Once approved, the product may qualify for seven years of marketing exclusivity independent of any other intellectual property.
Epizyme has already released data that one patient has experienced a 90% reduction in circulating leukemic blast count in her blood by the fifth day of EPZ-5676 treatment. This and other pieces of key data have allowed the company to secure potential milestone payments of more than $900 million and to complete an IPO by selling 5.9 million shares for $15 per share, surpassing projections for the company's debut. With a $900 million market cap, it's likely that Epizyme and other smaller companies are both contributing to and profiting from the growing trend of investors easing back into the biotech business; the Nasdaq Biotech index shot up 35% for the past 3-yr bracket compared to a 15% climb in global marketplace.
Path to Market
The timing of Epizyme's programs is very difficult to predict, which is true of any company that is in Phase I or Phase I/II trials. Let's first assume that Epizyme will pursue both MLL-r and NHL going forward, which would require positive indications of therapeutic benefit in their current clinical trials. For MLL-r, the Phase I trial will probably finish in 2014, with the launch of a Phase II trial thereafter. If only a single dose-finding Phase II trial is required, a pivotal Phase III trial could start in 2015-2016. The standard primary endpoint for AML and ALL trials is overall survival, which will make the Phase III trial duration several years. In terms of EPZ-6438, pursuing NHL may be slightly faster, and the company expects to launch the Phase II portion of their Phase I/II trial in 2014. Primary endpoints for Phase III trials in NHL can be progression free survival or overall response rate, which requires monitoring of patients for a shorter duration. Of course, all of this depends on positive results going forward in all clinical trials.
Epizyme has secured heavy-duty core of investors such as New Enterprise Associates, Kleiner Perkins Caufield & Byers, Bay City Capital and MPM Capital, which form a strong investor support network and contribute to the company's strong cash position. Epizyme ended its second quarter on June 30, 2013 with cash and cash equivalents of $148.7 million, $88.7 driven by gross proceeds extending from the company's June 2013 IPO. Shares up are 107% from the IPO, which occurred less than 3 months ago, and full-year 2013 net cash used in operations is expected to be $65 million, which should fund the company until at least mid-2015. Epizyme is certainly packing quite a punch for a relatively young company.
In a cancer drug-infested playing field, Epizyme has managed to grab the attention of the biotech industry not only by securing game changing partnerships for the development of its therapeutics, but also by providing tremendous potential for investors to dominate the market with novel drugs to treat a sub-section of cancers. According to Epizyme, the annual patient pool is an estimated 60,000 persons, a great market size. Current investors will certainly be watching for any clinical data over the next year and beyond, with the hope of validating Epizyme's drugs as novel treatments for cancer, as well as providing support for such a generous market cap.
Investments in early stage-biotechnology companies are risky due to the significant time and resources needed upfront and the lack of revenue-generating products. Results from preclinical or clinical trials do not guarantee that a drug will be approved or that it will penetrate the market sufficiently to return shareholder investments.