Epizyme: Exciting Science, Exciting Investment Opportunity

Dec.19.13 | About: Epizyme (EPZM)

Epizyme (NASDAQ:EPZM) is a clinical stage biopharmaceutical company, which develops small molecule inhibitors targeting specific epigenetic abnormalities in human cancers. The company developed a first-in-class small molecule inhibitor targeting histone methyltransferases, which are genes involved in growth of many cancers.

Epizyme currently has two flagship compounds, which are in early clinical trials. EPZ-5676 is a DOT1L inhibitor and EPZ-6438 is an EZH2 inhibitor. The company recently presented a Phase I trial data for EPZ-5676. Despite positive results, shares dropped almost 40%. I reviewed these results as well as possible reasons for this counterintuitive development of the stock price (SA article available here).

In December this year, Epizyme and collaborating academic researchers presented new data at the annual American Society of Hematology (ASH) meeting. Results were presented in several scientific presentations including a highly coveted Scientific Spotlight Session. I think it is worth to review these data and analyze the impact for the company. All abstracts are available on the ASH website (ASH) if you type Epizyme in the search field.

In general, investors have a relatively limited amount of information available to evaluate their investment in an early-stage biotech company. I believe that a careful analysis of preclinical science data and early clinical data can provide a good guidance to avoid total failures and identify potential multibagger opportunities.

Quick overview of the presented science

Scientific papers using Epizyme's drugs covered several important topics. The first paper (Abstract 3930) analyzed the effect of DOT1L inhibitor in combination with standard chemotherapy drugs. This is a very important study, because no single drug will be a cure for acute leukemia. Authors have shown that EPZ-5676 is working very efficiently as a single agent; however there is a synergistic effect when combined with standard chemotherapy. The study also showed that EPZ-5676 caused a durable alteration of the chromatin in leukemia cells, which persisted even after the drug was washed out indicating a persistent effect of the epigenetic modification.

The second paper (Abstract 1256) showed that EPZ-5676 has an unexpected effect on leukemia with a MLL partial tandem duplication (PTD). As you may recall from my previous article (here), the MLL rearrangement (MLL-r) characterizes a distinct subset of leukemia. However, this MLL-PTD is found in additional 5-10% of acute leukemias and is associated with poor prognosis for patients. MLL-PTD tumors responded remarkably to EPZ-5676, which inhibited the tumor growth. This is very exciting, because it increases the potential number of patients who may benefit from this drug from ~4900 to ~7200. This drug can be added to the current chemotherapeutic regimen of patients with MLL-PTD. Based on the low toxicity findings from the Phase I trial, this strategy has a very good rationale that the drug will improve the outcome while not increasing the toxicity. Both MLL-r as well as MLL-PTD leukemia are ideal candidates for the fast approval since they are both aggressive diseases with limited therapeutic options and poor survival. The company is planning the MLL-PTD trial in 2014.

The last paper (Abstract 4416) is also important because it shows that Epizyme is not a one drug company. EPZ-6438 is an EZH2 inhibitor, which has shown a remarkable effect in preclinical studies in variety of cancers. In the presented paper, the EZH2 inhibitor showed a strong benefit, when added to the standard chemotherapy with a durable tumor regression. This growth inhibition persisted even after the therapy was removed. The therapeutic effect was also specific, because only EZH2 mutated cancer cells responded. EZH2 mutated lymphomas are diagnosed in ~12000 patients every year and are largely resistant to current therapies.

Furthermore, the EPZ-6438 Phase II trial is planned for patients with synovial sarcoma in 2014 (1700 potential patients annually) after the maximum tolerated dose is established from the Phase I lymphoma study.

The company did not share any plans about the EPZ-6438 trial for malignant rhabdoid brain tumors (~700 patients annually) yet. This is a particularly horrible childhood cancer with less than 20% survival, which showed a remarkable response in preclinical studies. Although these patients represent a small market, I can only hope Epizyme will start a clinical trial as soon as possible.

Although all these cancers seem quite different, they are in fact driven by the same epigenetic mechanism, which can be targeted by the same drug. Therefore positive clinical results from one cancer are very encouraging for other indications.

So where is the company going now?

The company has many powerful collaborations including Celgene (NASDAQ:CELG), GlaxoSmithKline (NYSE:GSK) and Eisai Pharmaceuticals (OTC:ESALF), which indicates that the Big Pharma is taking Epizyme and epigenetic modifications and inhibitors very seriously.

The company had a successful IPO and currently has ~$140 million cash on their balance sheet.

Epizyme is actively pursuing both the EPZ-5676 and EPZ-6438 in Phase I trials, which will be followed by Phase Ib and Phase II trials in 2014. The most important point is that the company is not trying to "cure all cancer." Instead, Epizyme is pursuing a very focused approach with a well-defined patient population, thus maximizing the chance of positive outcome. I find this strategy wise in respect to the future FDA approval process. Toxicity data are also very encouraging and preliminary Phase I data show that the clinical effect correlates well with the preclinical science.

Epizyme sold shares for $15/piece during the IPO and the current price is lingering around $20 after the massive drop. This price seems to be low for a company that has two very promising drug candidates, in my opinion. In addition, it does not seem that the end of the lock-up period at the end of November motivated insiders to sell their shares. This also increases my confidence in the future of the company.

Altogether, Epizyme continues to present a superb science accompanied by rapid clinical trials, which closely mirror preclinical data. It provides an exciting opportunity for those who can take the volatility and risks associated with a biotech stock investment.

This article is not meant as a recommendation; you should do your own research and consult with professionals before investing in stocks.

Disclosure: I am long EPZM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.