Epizyme Up Big After IPO - Impressive Pipeline

| About: Epizyme (EPZM)
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On May 31, 2013 Cambridge Massachusetts based Epizyme (NASDAQ:EPZM) had an IPO at $15 per share. Just three days later the equity has nearly doubled and is now priced at $27.99. While that is an impressive gain, what is it about this market newcomer that has investors excited?

Essentially Epizyme is a bio-pharmaceutical company works on the development, discovery, and commercialization of personalized therapeutics for patients with genetically defined cancer. Sounds a bit confusing, but in more simplistic terms the company identifies the cancer causing genes. Epizymes treatment then identifies patients where these genes are found and then designs molecule therapy to stop the gene from being developed. Essentially, rather than treating the symptom (something that is all too common), Epizyme treats the cause.

An investor may ask the obvious question. Why isn't big pharma doing this or why isn't big Pharma involved. The answer is simple. Big pharma is involved. Instead of trying to compare Epiozyme to the likes of Glaxo Smith Kline (NYSE:GSK), compare Epizyme to a company like Arena Pharmaceuticals (NASDAQ:ARNA). In the same manner that Arena developed the anti-obesity drug Belviq and then partnered with, for a royalty, big pharma company Eisai for U.S. marketing, Epizyme has partners of its own that carry impressive resumes.

How does a small biopharma company possibly become worth billions? The answer is lost of research and work as well as entering the right partnership deals that allow you to continue the process again and again. The deals already signed include $120 million in non-equity funding through Q4 of last year and over $1 billion in research, development, regulatory, and sales based milestone payments. Want more? Epizyme also gets royalties and/or profit sharing on NET sales. One last bonus with Epizyme. The company has retained commercialization or co-commercialization rights in the United States for all but three of its ongoing programs.

Partnership with Celgene

Epizyme and Celgene (NASDAQ:CELG) have a collaboration on several therapeutic programs. The two companies entered an agreement in April of 2012. Celgene has exclusive license to DOT1L program (including EPZ-5676). EPZ-5676 was identified using a proprietary product platform and is an intravenously administered small molecule inhibitor of DOT1L for the treatment of mixed lineage rearranged leukemia (MLL-r). In September 2012, Epizyme initiated a Phase 1 clinical trial for EPZ-5676. The company believes that EPZ-5676 is the first HMTi to enter human clinical development and the company is expecting to announce some initial results in the second half of this year.

For its part Epizyme received a $65 million upfront payment and $25 million from the sale of some Series C preferred stock to a Celgene affiliate. Epizyme is eligible to receive up to $160 million in development and regulatory milestone payments as well as another $165 million in option exercise fees and development regulatory milestones related to each additional target that Celgene exercises an option on. The option expires in July of 2016.

Partnership with Eisai

Epizyme signed an agreement with Eisai (OTCPK:ESALY) in April of 2011. Eisai gets worldwide rights to license the Epizyme EZH2 program, including EPZ-6438. Epizyme retained the rights to co-develop, co-commercialize, and share profits with Eisai in the United States. EPZ-6438 is an orally available small molecule inhibitor of EZH2 for the treatment of non-Hodgkin lymphoma patients who have an oncogenic (cancer-causing) point mutation in EZH2. Epizyme believes that EPZ-6438 may also be a potential treatment for patients with other types of solid tumors resulting from the misregulation of EZH2, and plans to develop EPZ-6438 for the treatment of patients with the pediatric cancer known as malignant rhabdoid tumors.

The deal with Eisai garnered a $3 million upfront payment. The company has also received $11.3 million in research funding and $7 million in research milestone payments. Epizyme is eligible to receive $201 million in additional milestone payments, $86 million in regulatory milestone payments, and another $115 million in sales-based milestone payments. Eisai funds all research, development, and commercialization costs of licensed compounds.

Partnership With Glaxo Smith Kline

In January of 2011 Epizyme entered into an agreement with Glaxo Smith Kline to discover, develop, and commercialize novel small molecule HMT inhibitors directed to available targets from the Epizyme proprietary platform. Glaxo gets the option to obtain exclusive worldwide license rights to HMT inhibitors directed to up to three targets. Glaxo has already selected and licensed the three targets that were part of the agreement.

Epizyme received an upfront payment of $20 million, The company has received an additional $4.5 million in research funding as well as $8 million in milestone payments. Epizyme is eligible for up to $630 million in additional milestone payments related to research progress, $360 million in regulatory milestones, and $270 million on sales based milestones. In addition to all of that Epizyme receives royalties on worldwide net sales.

Partnership With Roche

Epizyme and Eisai collaborated together to enter a deal with Roche in December of 2012. The deal centers around a companion diagnostic for use with the EPZ-6438 product under agreement with Eisai.

Partnership With Abbott

In Februaryu of this year Epizyme partnered with Abbott (NYSE:ABT) to fund Abbott's development of a companion diagnostic for EPZ-5676. Epizyme funds the program up to about $9.3 million.

As you can see, the exciting thing about Epizyme is that it has funding in place to continue its research and operations. The company has mitigated risk by entering into strategic partnerships, and has increased the company viability by retaining certain rights. Researching and developing drugs and treatments can be a cash burning exercise in futility that is fraught with risk. Epizyme has expertly and strategically spread its risk while maintaining cash flow and can get some substantial financial rewards if this pipeline comes to fruition. I like the profile of the company, the profile of the treatments, and see possible "orphan drug" possibilities based on the platform that Epizyme is using. As stated, Epizyme just went public. It may be tempting to wait for the dust to settle, but it is not every day you come across a biopharma that is in a position like Epizyme.

Disclosure: I am long ARNA. 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.

Additional disclosure: I have no position in Glaxo, Eisai, Celgene or Abbott