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Cambridge, MA-based Epizyme (EPZM) had a very successful IPO earlier this year.

In late May Epizyme sold 5.9 million shares at $15 per share in its IPO, including the over-allotments (option to purchase additional shares at the offering price) given to underwriters Citi, Cowen & Co., Leerink Swann, JMP Securities, and Wedbush Securities. As a result, aggregate net proceeds to the company, after underwriting discounts and commissions and other estimated offering expenses, would have been approximately $79.8 million.

Epizyme's stock skyrocketed more than 50 percent and closed at $22.99 on its first day of trading. At this writing, the share price is over $30.00, a better than hundred percent rise in a few months.

Epizyme is creating personalized cancer therapies for select patients using epigenetics, a field of biotech based on the idea of switching genes on and off without changing the underlying DNA.

The company has significant collaboration agreements with Celgene (CELG), GlaxoSmithKline (GSK) and Eisai (OTCPK:ESALY).

Epigenetics

Epigenetics is the study of the molecular changes in cells that can activate or mute certain genes without changing the underlying DNA code, for example by affecting the way DNA strands are folded.

Inside the cell nuclei (kernel) the DNA of chromosomes is packed by wrapping around groups of proteins called histones, like a thread wrapped around a spool.

The histones form packages that combine DNA and histone units, known as nucleosomes. The tightness in these packages is apparently crucial. How tightly packed the nucleosomes are determines how easily individual genes on the DNA may be expressed.

The tightness of the packing is controlled by enzymes. Where, when and how many of these enzymes are deposited determines which genes in a cell are turned on or off at any particular time.

Genetic alterations can result in changes to the activity of these enzymes or their more specific name, HMTs (histone methyltransferases), and making them cancer-causing. Research found that inhibiting some of these HMTs can fight cancer.

This is a novel approach in cancer therapy. Epizyme is making drugs that target a 96-member class of HMTs. EPZ-5676 is the most advanced candidate, which blocks an enzyme called DOT1L.

Trials

Epizyme has two trials running.

The lead program is for genetically defined subtypes of acute leukemia called MLL-r or Mixed Lineage Leukemia. The compound is called 5676 and the trial is conducted in collaboration with Celgene.

MLL-r is an aggressive subtype of two of the most common forms of acute leukemia, AML (acute myeloid leukemia) and ALL (acute lymphoblastic leukemia), caused by a chromosomal translocation involving the MLL gene.

The prognosis for these patients is very poor. The five-year overall survival rate for adult patients with the MLL-r subtype of AML ranges from approximately 5 to 24 percent.

MLL-r occurs in both the adult and the infant population, and for kids the prognosis is similarly bleak. At this time, there are no approved therapies specifically indicated for MLL-r, so there's a high need for therapy.

The 5676 trial began last September. It aims to block the histone DOT1L. Due to a translocation, DOT1L becomes cancer causing and it's a clear cancer driver for about 10 percent of all leukemia patients. That represents about 5,000 patients per year.

The Phase 1 study has two stages. The first group accepts all comers within a few leukemia types and it is running right now at six sites. The second stage of the trial will exclusively enroll MLL-r patients and is expected to initiate later this year.

The Phase 1 study is a safety trial. Delivery of the drug is handled through a 21-day continuous IV infusion in each 28-day cycle. The cycles will continue until the disease start progressing again or unacceptable toxicity develops.

Epizyme's second program, called 6438, is targeting a genetically defined subtype of non-Hodgkin lymphoma that is caused by a mutation in an HMT called EZH2. This trial is done in collaboration with Eisai.

Companion diagnostic

To identify genetically qualified patients, Abbott (ABT) is going to develop a FISH test to detect MLL genetic alterations that lead to the cancer causing function of DOT1L. This will help Epizyme match its drug with the right patients. The agreement with Abbott was signed in April.

The contract to develop a diagnostic test for the 6438 program was given to Roche (OTCQX:RHHBY).

The existence of a diagnostic test is helpful for an FDA application.

The FDA likes to see that the applicant has a clearly defined patient population in which the drug works. This kind of data speeds up the approval process like it did for Pfizer's (PFE) ALK inhibitor Xalkori and for several other approvals.

Using the diagnostic test, Epizyme hopes to generate a much higher percentage of responses than the usual 20-30 percent generally obtained in trials that accept everybody in a category without testing. A higher percentage obtained early is usually predictive of what happens later in much bigger clinical trials.

The Celgene deal

In 2012 Epizyme made a deal with Celgene, getting $90 million upfront and a promise of more in return for Celgene to become a partner in the technology and also gaining marketing rights to all countries outside the U.S. for approved products.

The pact promises tens of millions more in milestones for any successful therapy that comes out of the deal.

The partnership gives Celgene rights to access to all of Epizyme's HMT inhibitors for three years, with an option to extend that by a year.

The Celgene agreement also contains restrictive provisions aimed at deterring potential buyers from acquiring Epizyme.

To amend or repeal company bylaws will require votes from at least 75 percent of the stockholders.

Celgene is granted an exclusive license for all countries other than the U.S. to HMT inhibitors including DOT1L and all other HMT inhibitors that are not currently subject to the Eisai or GSK contracts.

Epizyme is required to notify Celgene if it starts negotiation with any third party regarding a business transaction and Celgene has the first right of refusal in any such deals.

Epizyme has research partnerships with GlaxoSmithKline and Eisai, which including the Celgene deal, are worth $125 million in nonequity financing to date.

Future development

The HMT class of enzymes is promising for drug therapy for several reasons.

There are a large number of HMTs in humans and these enzymes are needed to conduct all of the methylation reactions at specific locations within the histones. As a result, this class provides a large number of potential drug targets.

Since HMTs regulate gene expression in a precise fashion, they provide a potential for creating inhibitors that likely will have a desired biological effect.

Also, certain cancers became strongly dependent on the enzyme activity of specific HMTs, which improves the likelihood that an inhibitor will work.

Epizyme was founded on the premise that some of the HMTs play a role in cancer and could be targeted.

A systematic research was carried out to find such targets. The company designed special biochemical and cellular assays in the laboratory to confirm the enzymatic function and oncogenic mechanism of various HMTs.

For example, using assays, it was discovered that the point mutation in EZH2 played a cancerous role in a genetically defined subtype of non-Hodgkin lymphoma. A point mutation is a genetic alteration in which a single nucleotide base in a gene is substituted, added or deleted. This discovery formed the basis of the company's EPZ-6438 program.

Epizyme has selected 20 HMTs from a total of 96 for its drug discovery programs.

While HMTs are a particularly attractive target class of enzymes for drug therapy, in Epizyme's experience it requires significant effort and scientific knowledge to successfully pursue drug development directed at these targets.

Competition

Epizyme isn't the only company out there in hot pursuit of epigenetic drug targets.

Partner Celgene itself is one of the leading makers of such drugs, with two products on the market, Vidaza and Istodax. Merck (MRK) is selling Zolina.

There are more drugs in development by Novartis (NVS) (Panobinostat), Astex Pharmaceuticals (ASTX) (SGI 110), Syndax Pharmaceuticals (Entinostat), Mirati Therapeutics (MRTX) (Mocetinostat), Resverlogix (OTCPK:RVXCF) (RVX-208), GlaxoSmithKline (SRT2104) and many others.

Investors' summary

At the end of June, including the IPO gross proceeds of $88.7 million and cash from previous successful fund raising, the company's cash and equivalent holdings were $148.7 million.

Collaboration revenues for the first 6 months of 2013 came to $23.7 million, operating loss was $9.7 million.

Since the Nasdaq listing, Epizyme's share price has traded in the range of $18.60 and $45.72. Market cap is $928 million.

Some people complain that the Human Genome Project, much ballyhooed in the 90s, did not bring many practical results. But what Epizyme does is a result of that project.

Sequencing the DNA of cancer cells shows the genetic alterations in the DNA that cause cancer, and by recognizing the significance of these alterations, the company is now able to design small molecule drugs that directly target the underlying defect in those cells.

Epizyme has a novel anti-cancer platform and is applying it to an area where there is a great unmet need for therapies.

The promise of the epigenetic enzyme inhibitor EPZ-5676 is that it could be the first targeted drug for a deadly blood cancer, Mixed Lineage Leukemia. Positive signs of efficacy could put the compound on a speedy path to approval as the FDA is eager to streamline development of new therapies for patients in need.

Some analysts speculate that if the trials bring good results, Epizyme could become a hot takeover candidate. Certainly, the collaboration deals and the success of the IPO show that investors, including big pharma companies, are interested and approve what they see so far.

Source: Epizyme: The Promise Of Personalized Cancer Therapy