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  • Early data read outs from EPZ-6438 were robust.
  • Results open up potential to dose the drug at higher levels and for more cycles which could potentially lead to more and stronger tumor responses.
  • EPZ-6438 more likely to be part of combination therapy than used as monotherapy.
  • Data on WT EZH2 activity in NHL opens up new market for EPZ-6438.
  • Updating Price Target to $35.32/share. Reiterate Buy rating.

Investment Conclusion. Initial data read outs from the Epizyme (NASDAQ:EPZM) EPZ-6438 Phase I dose escalation study were robust. The drug showed early indications of activity in two NHL patients, there was a lack of significant dose limiting toxicities (DLTs), and maximum tolerated dose [MTD] was not reached. In addition, there were pharmacodynamic effects of methyl mark reduction observed in the skin. This means that EPZM is now free to give patients higher doses of the drug and for longer durations with lower immediate safety risk. Greater dose intensity and dose density might result in more tumor responses as well as stronger and possibly durable effects. In addition, higher doses given for more cycles, might lead to sufficient levels of DLTs and identification of the MTD in cohorts 4 and 5 (now accruing). In my opinion, the lack of MTD is a non-issue. Typically, it is thought that both efficacy and toxicity increase with dose. However, in case of molecular targets, efficacy might occur at doses that do not induce clinically significant toxicity. In such instances, as I believe is likely the case with EPZ-6438, the recommended Phase II dose can be developed on basis of biological effects seen with the drug. Further, as the tumor responses were partial, the drug will probably be paired with either additional cytotoxic agents or surgery to achieve best treatment outcomes. In that regards, the company's proactive efforts in pre-clinically testing EPZ-6438 with CHOP chemotherapy as a whole and then with its individual components makes a lot of sense. In the preclinical setting EPZ-6438 showed broad activity in combination with CHOP and greater synergy when paired separately with Prednisone and Dexamethasone. Finally, although tumor growth is typically a function of mutant EZH2 rather than wild type (WT) EZH2, both single agent EPZ-6438 partial responses were seen in WT EZH2 NHL. If EPZ-6438 gets the FDA's nod for the indication, the market potential for the drug will expand. With respect to valuation, given that the recent data read outs are early and outcomes could differ on final analysis, I am not making any substantial changes to my previous estimates or assumptions, other than incorporating additional revenues from the EZH2 WT NHL indication. Based on the change, I derive a Price Target of $35.32/share for the stock and reiterate my Buy rating.

EPZM Reports Interim Data from EPZ-6438 Study. On August 12, EPZM reported new preclinical and early clinical data on EPZ-6438 at the American Society of Hematology [ASH] meeting on lymphoma biology. The preclinical study evaluated EPZ-6438 in combination with first the entire CHOP regimen (Mafosfamide, Doxorubicin, Vincristine, Prednisone, and Dexamethasone) and then separately with each independent CHOP agent in patients presenting with both EZH2 mutant and EZH2 wild type germinal cell (GC) non-Hodgkin's lymphoma (NHL). The trial showed that EPZ-6438 had broad activity with the CHOP regimen. In regards to doublet combinations of EPZ-6438 with each individual CHOP drug, the results were mixed. Although, EPZ-6438 + Prednisone and EPZ-6438 + Dexamethasone appeared synergistic in case of both mutant and WT EZH2 GC NHL, other CHOP compounds when combined with EPZ-6438 did not result in any material clinical effect on GC NHL cells lines carrying the WT EZH2 protein.

EPZ-6438: Combinations With CHOP Components

Source: EPZM Presentation at ASH Lymphoma Biology Conference, August 12, 2014;

The early clinical observations were from the EPZ-6438 Phase I dose escalation trial investigating the drug in patients with solid tumors (n=12) including four with NHL of varying histologies, cell lines, and EZH2 status. Patients in the study received three cycles of either 100 mg, 200 mg, or 400 mg doses of EPZ-6438. The key objective of the trial was to generate pharmacokinetics (PK) and pharmacodynamics [PD] data, as well as identify the MTD and DLTs. Results showed that the MTD was not reached, there were no reported instances of patients discontinuing therapy due to DLTs, and a dose proportional response and methyl mark reduction (as reflected in the skin) was observed in patients on study. Importantly, in the case of NHL there were two partial responses reported, in one patient with WT EZH2 of GC origin DLBCL (66% reduction in lesion from baseline) and in another with WT EZH2 PMBCL (73% reduction in lesion from baseline). Out of the other two NHL patients, one had stable disease and another showed progressive disease.

EPZ-6438: Tumor Response in NHL Patients

Source: EPZM Presentation at ASH Lymphoma Biology Conference, August 12, 2014;

Class Effect Evident in Interim EPZ-6438 Phase I Results. Data read outs from the EPZ-6438 trial were strong. MTD was not reached and there were no discontinuations due to DLTs which essentially means that patients might be able to withstand higher doses and additional cycles of the drug which could reflect in more, stronger, and durable tumor effects. Importantly, the delayed response seen with EPZ-5676 might be a factor with EPZ-6438 as well, as the agents showed similar activity on end points in the dose escalation phase. Tumor response in the patient with PMBCL is currently ongoing and could result in a better effects over time. The other three lymphoma patients from the first three cohorts are off study treatment. If MTD is not reached, the company plans on constructing a recommended Phase II dose from PK, PD, safety profile, and biologic activity.

EPZ-6438 Probably a Combination Drug. Given that tumor responses seen in the study were partial only, it is possible that EPZ-6438 monotherapy might not be a clinically meaningful treatment option for EZH2 mutant and WT NHL. This scenario appears particularly likely given the early successful results evidenced in both WT and mutant EZH2 NHL cell lines when treated with doublets of the drug with either single agent Prednisone or Dexamethasone. Although, the company's investigation of 800 mg and 1600 mg doses of EPZ-6438 in cohorts 4 and 5 might still be positive on single agent complete response activity, I believe EPZM is more likely to develop the drug as combination therapy rather than as monotherapy. In that regards, it is important to note that combinations of EPZ-6438 with steroids have been tested only in the preclinical setting. The first in human evaluation of EPZ-6438 doublets with CHOP agents will be in the Phase II expansion study.

Phase III Likely Required for FDA Approval. The MTD has not been reached and in case it remains unreached after cohorts 4 and 5 have undergone testing, management plans to identify the recommended Phase II dose based on PK, PD, safety profile, and biologic activity. Moreover, the EPZ-6438 Phase II study is expected to be designed as single arm multi-cohort study testing the drug in WT or mutated EZH2 GC DLBCL, primary and mediastinal B cell lymphoma, and follicular lymphoma. Given the likely unachieved MTD status and single arm design of the Phase II EPZ-6438 study, it is possible that the FDA will require a randomized and controlled Phase III trial with statistically significant outcomes favoring the treatment arm over the control to approve the drug. Therefore, it is probable that the previously defined regulatory approval time line for EPZ-6438 might be pushed back.

Opportunity for Market Expansion Based on WT EZH2 Response. Given that both the partial responses in the EPZ-6438 Phase I study were in patients with WT EZH2 NHL, there appears to be an opportunity for market expansion if the signal is confirmed in a pivotal study. Interestingly, combinations of the drug with CHOP and its independent components, besides showing activity in mutant EZH2 bearing NHL cells, also showed response in NHL with WT EZH2. It is important to note that although potential approval in the indication will double the market opportunity, treatment cost/year for EPZ-6438 as part of a combination regimen will be lower than if the drug were to be used as monotherapy.

EZH2 mutations in NHL occur in DLBCL and FL. In 2014, an estimated 70,800 new cases of NHL will be diagnosed, and 18,990 patients will die from their disease. In addition, EZH2 mutations are observed only in the germinal center B cell (NASDAQ:GBC) type of DLBCL. Among the annual cases of NHL 30% are projected to be DLBCL and 29% of DLBCL is GCB, and EZH2 mutations are seen in 21.7% of GCB DLBCL. In addition, based on clinical trial data, I assume incidence of WT EZH2 will be similar to that of mutant EZH2. So, based on the new information of WT EZH2 tumor activity, I am increasing the addressable market size for EPZ-6438 in NHL by 21.7%. However, I am lowering the average cost of treatment/cycle to $12,500 from $15,900 to reflect the average cost/cycle associated with Rituxan as part of the R-CHOP regimen for DLBCL. Among the annual cases of NHL 22% is estimated to FL, and 7.2% of FL is modeled to be EZH2 mutated.

EPZ-6438: Global In-Market Sales Forecast in NHL
(click to enlarge)

Source: Poonam A. Arora's Estimates;

Incorporating the elements discussed above, and assuming that 50% of the derived GCB DLBCL and FL addressable population is relapsed and refractory to alternate treatments, a penetration rate of 90%, a treatment cost/cycle of $12,500, and average duration of treatment of 9 months, I arrive at global revenues for EPZ-6438 of $331.4 million in 2022.

Reiterating Buy Rating and Updating Price Target. Only change to my prior valuation of EPZM is an increase in revenue estimates associated with EPZ-6438 in NHL to account for potential expansion in sales from WT EZH2 NHL (went to $331.4 million from previous $237.8 million) and a push back in launch schedule to 2017 from prior 2016. No change in other revenue estimates, possibilities of approval, discount rate, or revenue multiple from my prior report. Based on the update my Price Target goes to $35.32/share from the previous $33.28/share.

Epizyme: Sum-of-the-Parts Analysis

Source: Poonam A. Arora's Estimates;

Source: Epizyme: Strong Early Data But Reserving Judgment Until Final Results
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