Epizyme Shares Soar On Milestone Payments

The Epizyme Inc. (EPZM) IPO is one of those success stories that showcase biotech as a typical sector where willingness of investors to take binary risks has increased over the last couple of years. The company went public in June 2013 with an IPO priced at $15 s share and the stock went up to $30.86 within days. It is another story that by November 2013 the stock tumbled down nearer to the offer price.

On January 7, 2014 shares of Epizyme jumped 75% on announcement that the company’s had achieved a proof-of-concept (POC) milestone that triggered payment of $25 million from partner Celgene (CELG). The company’s stock now trades at $35.12 (end of day January 8, 2014).

Epizyme is partnering Celgene for the clinical program of EPZ-5676 DOT1L inhibitor, its small molecule treatment for acute leukemia with a particular genetic aberration. The drug is in Phase I trials and the POC was established when patients with leukemia caused by the translocation of the MLL gene responded to treatment.

Being a rare disease, the drug earned the designation of an orphan drug in August 2013, which explains investor euphoria that prevails on the counter.

Earlier, in October 2012, Epizyme earned $4 million in milestone payment from partner GlaxoSmithKline (GSK) on the basis of achievement of pre-clinical milestone, bringing the total milestone payments from the pharmaceutical giant to $8 million. Epizyme and GlaxoSmithKline have a worldwide strategic partnership for development of novel small molecule drugs targeting gene regulating enzymes, particularly compounds that target histone methyltransferase (HMT). HMT is considered to be the cause of certain types of cancer as well as metabolic diseases, inflammation and neurodegenerative disorders.

The milestones payments received by Epizyme propped up the company’s cash position to much above the guidance given by the company – the company had $145 million in cash and receivables at the end of 2013 against the projected $115 million.

Biotech companies have assumed the responsibility of developing new drugs while the big pharmaceutical companies have chosen to wait and watch on the sidelines. Whenever an opportunity is presented they do not hesitate to license the drug or acquire the drug discoverer. Many such recent acquisitions have been at exceptionally high premiums to market price.

Epizyme has ongoing partnerships with Celgene, GSK, Abbot (ABT), Roche (RHHBY) and Eisai related to its two flagship compounds, which are presently in early development stages.

Epizyme offers an exciting opportunity to investors ready to take binary risks. While it is anybody’s guess when and IF a bigger player considers Epizyme for acquisition, investors need to keep in mind that a huge majority of drugs fail to reach late stage development phase.