Is It Too Soon to Buy This Biotech?

Shares of the clinical-stage biotech Epizyme (NASDAQ: EPZM  )  have more than doubled since the company's spring IPO. Last week's third-quarter report brought another 6% bump. What's the attraction? 

Epizyme's early-stage pipeline drugs aren't far enough along to churn out conclusive data. The company does have big-name partnerships and cancer drugs targeted at areas of unmet needs, however. 

Does Epizyme's current business deserve the share growth -- or should investors hold off for more data?  

What's Epizyme? 
Epizyme focuses on epigenetics, an emerging biotech development area that works to turn genes on and off without altering the DNA. Epizyme's proprietary platform targets enzymes called histone methyltransferases, or HMTs, which can cause cancer when altered. Epizyme aims to tailor drugs to a cancer patient's particular genetic situation -- and provide treatment options for genetic subtypes of cancer that are typically difficult to treat.  

Two drugs with partners
Epizyme will report top-line data in the fourth quarter for leukemia drug EPZ-5676, which received orphan drug status in August. The phase 1 dose escalation trial includes patients with mixed lineage leukemia, or MLL -- a genetic variation of two common forms of leukemia.  

An expansion trial should launch around the time the top-line results come out, and a pediatric trial should follow next year. That's also when Epizyme plans to initiate another early stage trial for treating a different genetic variation of acute myeloid leukemia.

Epizyme and Celgene (NASDAQ: CELG  ) have a development deal that includes EPZ-5676. The deal paid Epizyme $68 million up front and entitles the company up to $60 million in development milestone payments and $100 million in regulatory milestones. If the drug makes it to market, Epizyme would retain U.S. rights and receive royalties for Celgene's sales abroad.

Following on the lead drug's heels is EPZ-6438 -- called E7438 by partner Eisai -- which treats a subtype of non-Hodgkin lymphoma. A dose escalation study began this past summer, and Epizyme hopes to initiate phase 2 trials next year. 

Eisai takes the financial lead with EPZ-6438 and will stay solely responsible for the drug's development and commercialization costs -- unless Epizyme decides to opt in. Epizyme would receive royalties to domestic and overseas sales should the drug reach approval.   

Companion diagnostics
Epizyme's drug development partnerships are joined by two companion diagnostics projects.    

The company has an agreement to fund Abbott Labs' companion diagnostic project that would identify the genetic mutations targeted by EPZ-5676. Epizyme paid Abbott just under $1 million up front and could pay up to $6 million in milestone payments.

Eisai and Roche have a similar diagnostic agreement pertaining to the gene mutations targeted by EPZ-6438. Epizyme has the choice to opt in to the project in the future and would then take on a share of the costs.   

Success of the companion diagnostic projects would help if the drugs make it to the end of the regulatory pipeline. The Food and Drug Administration likes it when gene-targeted drugs have associated tests that help identify the relevant patient population, and has even denied cancer drugs in the past based on a lack of diagnostics.

Foolish final thoughts
Epigenetics is growing in popularity, but the specialized targeting of the drugs means that there's plenty of room in the market. Will Epizyme's drugs make it that far? The big-name partnerships inspire optimism, but I'm wary of the current share price without any mid- to late-stage data available. 

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