Epizyme (NASDAQ:EPZM) is a biopharmaceutical company developing novel small molecule inhibitors targeting histone methyltransferases (HMTs). HMT inhibitors represent a new class of drugs with a paradigm shifting potential in cancer therapy, and Epizyme is currently the most advanced player in the field.
I have followed the company on Seeking Alpha since November 2013 when I argued that the market completely misinterpreted Phase I clinical data and that the massive sellout represented a great buying opportunity (here). My assumption was based on clinical effects of EPZ-5676, a novel DOT1L inhibitor which showed remarkable data for a Phase I trial. The lack of toxicity and the fact that EPZ-5676 did not reach the maximum tolerated dose, MTD, both argue that EPZ-5676 represents a very promising novel drug for MLL-driven leukemia.
In December 2013, Epizyme presented preclinical data, showing strong effect of the second compound, EPZ-6438, in EZH2 mutated lymphomas, alone or in combination with chemotherapy (reviewed here). I was impressed by good correlation between preclinical data and clinical science from Epizyme so far and believed that at $20, the stock is significantly undervalued and represents a great opportunity for an investor who is able to tolerate risks and volatile swings inherent to biotech stocks. Since my last article, the stock has appreciated significantly, reaching over $40 on two occasions, and trades currently at $36, which represents a healthy 80% gain in 8 months. So the question is, what is the long-term potential of Epizyme at this level?
I was anxious for the American Society of Hematology-Lymphoma biology meeting in August 2014, although I saw signals indicating that we could expect good data. The primary objective of the Phase I trial was to define MTD dose. However, the reality is much better, and I would like to discuss the significance of these findings and recent scientific findings. Although Epizyme presented early clinical data from 12 patients only, I think it gives us a good glimpse in the future. The full presentation is available here.
1) EPZ-6438 shows no toxicities so far
The trial is currently going through the dose escalation phase. Three cohorts have been completed so far with doses of 100 mg, 200 mg and 400 mg. The 800mg and 1600 mg cohorts are enrolling. The drug has not reached MTD, and no dose limiting toxicities (DLT) or adverse effects that would require treatment discontinuation have been observed so far. I have described in great detail why this is great news in my previous article on Epizyme's DOT1L inhibitor, and I will avoid repetition in the interest of space (available here)
2) EPZ-6438 shows favorable pharmacodynamics (PD) and pharmacokinetics (PK)
The target was confirmed by skin biopsies, which showed inhibition of the target measuring H3K27 methylation mark, and pharmacokinetic data showed dose proportional response.
3) EPZ-6438 shows clinical effect
As I argued in my analysis of DOT1L inhibitor, one has to be very careful when analyzing clinical effect in Phase I trials. Patients who enter a Phase I trial have been heavily treated with several therapies that previously failed. They have cancers that have resisted everything what science has developed so far. Therefore, we do not expect much of a clinical effect in Phase I trials. However, similarly to the DOT1L inhibitor, we were shown surprisingly positive data. Patient 1 who was on the lowest dose showed a partial response with a 66% reduction of tumor size on CT scan in ~ 2 months. Another patient showed 73% shrinking of the tumor. The most interesting point is that both tumors are actually EZH2 wild-type (WT) (non-mutated). I will discuss later why this is important and how this changes my evaluation of the company.
Data presented at the conference clearly demonstrated effect of the EPZ-6438 as a single agent. We also know from the preclinical work that the drug works in synergy with steroids and chemotherapies of the so-called CHOP regimen which are used in lymphoma therapy. Particularly in combination with steroids, EPZ-6438 has shown effect both in mutant as well as non-mutant cell lines. With early clinical data showing effect of EPZ-6438 in WT tumors even as a single agent, there is strong indication that the drug might be eventually added to the CHOP regimen of germinal center (GC) lymphoma. There are currently no specific therapies being developed for GC lymphomas.
So what does this mean?
EPZ-6438 is a potential blockbuster drug for hematological cancers
Last year, I saw Epizyme predominantly as a boutique biotech company developing very specific drugs for a very small population of patients. However, if EZH2 inhibitor is safe and can be used in majority of GC lymphomas, we are talking about a real game changer and major increase in the target patient population and market. EZH2 mutated lymphomas are diagnosed in 12,000 patients annually; however, there are over 72,000 people diagnosed with GC-derived non-Hodgkin lymphoma (NHL) every year. These are just newly diagnosed patients. Considering the prevalence of disease and all patients with GC-derived NHL that might benefit from EPZ-6438, we are talking about a market of more than 180,000 patients. Just to get an idea about the potential sales, Genentech/Roche's (OTCQX:RHHBY) Rituximab, which is used in combination with CHOP therapy (R-CHOP) for NHL, had ~$3 bil. in sales in 2011. Granted, Rituximab is also used for other indications now, but as I will show later, the list of indications for the EZH2 inhibitor is rapidly increasing. Another good example is Celgene's (NASDAQ:CELG) Revlimid. Revlimid is used predominantly for therapy of multiple myeloma which is less common than GC lymphomas. From the future approval perspective, it is worth noting that Revlimid is far from being a safe and pleasant drug to use. Revlimid has significant side effects, including potentially increased risk of developing other cancers. Also, Revlimid therapy is still far from being a cure. Patients on Revlimid have shown good partial response and increased survival. Despite side effects and concerns, Revlimid is FDA approved, used in the clinic and generated $3.8 bil. sales in 2012; sales are projected to grow to $6.5 bil. in 2018. I would say that the success of Revlimid is largely "responsible" for Celgene's $70 bil. market cap. In comparison, EZH2 inhibitor EPZ-6438 is more specific, seems to have a favorable safety profile and has showed efficacy in the clinical setting.
The list of cancers suitable for EPZ-6438 therapy keeps growing
EZH2 is a part of a protein complex which is involved in several diseases. Recently, EZH2 was implied in the development of melanoma, a skin cancer, and suggested as a potential therapeutic target (review available here). Inhibition of EZH2 stopped the growth of embryonal rhabdomyosarcoma, a malignant cancer of childhood (here). In addition to tumors with mutated EZH2, a similar dysregulation is involved in development of cancers characterized by loss of INI-1 which normally opposes EZH2 activity. These mutations are found in some of the most aggressive human cancers such as synovial sarcoma and malignant rhabdoid tumors. Although the patient population affected by these tumors is much smaller ( ~1,700 patients/year and 700 patients/year, respectively), there are no effective therapies to date, making the approval process potentially much faster. Epizyme has presented extensive preclinical data showing efficacy of EPZ-6438 in rhabdoid tumors (here) and plans to initiate clinical trials soon. Lastly, several papers in Nature Genetics recently described mutations of the gene SMARCA4 in one of the most aggressive types of ovarian cancer, small cell carcinoma of hypercalcemic type (examples here and here). SMARCA4, also known as BRG-1 is a part of a protein complex together with.... INI-1! INI-1 is also known as BAF-47, which stands for BRG-1 Associated Factor 47. Both proteins work together and there is a good chance that since EPZ-6438 is effective in INI-1 mutated tumors, it might also be effective in BRG-1 mutated cancers. These cancers are rare, but extremely aggressive, affect young women and children and represent an unmet clinical need.
Epizyme has two promising drugs in clinical trials. Both drugs are characterized by favorable safety data and biological activity that closely mirror preclinical data. Drugs have shown impressive effects in patients even as a single agent. In combination with standard therapy these drugs may significantly improve prognosis. More importantly, these drugs show viability of Epizyme's pipeline. In addition, EPZ-6438 is not only a drug for a small population of patients, but may represent a widely used drug for hematological malignancies as well as for some rare cancers. If EPZ-6438 is incorporated in B-cell lymphoma therapy, it would be the biggest blockbuster drug in hematology since Revlimid.
There is no doubt in my mind that sooner or later, the competition will arise in the HMT inhibitor space. However, superb preclinical science, quickly progressing clinical trials and recently granted patent covering diagnosis and treatment of cancers with EZH2 mutations (here) put Epizyme ahead of the game.
It must be emphasized that clinical trials are long and uncertain, and biotech companies carry a very high risk for any investor involved. Stocks of any early stage biotech company are also incredibly volatile, and price can change markedly in either direction. Even the best preclinical science does not guarantee success in clinical trials and approval from regulators. Very few drugs make it from the laboratory to clinical practice.
This article is not meant as a recommendation; only to inspire thought and discussion. You should do your own research and consult with professionals before investing in stocks. Biotech stocks are associated with high risk including a total loss of the principal.
Disclosure: The author is long EPZM. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.