What happened

Shares of Epizyme (NASDAQ:EPZM) fell as much as 17.4% today after the company released fourth-quarter and full-year 2019 operating results. There wasn't much for investors to pick apart. The company is in the early stages of transitioning to commercial operations, which means it doesn't have much revenue. That also makes it difficult for Wall Street analysts to project quarterly revenue and earnings and makes misses or beats relatively meaningless.

That said, investors might be a little nervous about full-year 2020 guidance. Epizyme expects to report operating expenses in the range of $300 million to $330 million. That marks a steep increase from 2019, when the business reported operating expenses of $200 million and an operating loss of $177 million.

As of 11:36 a.m. EST, the pharma stock had settled to a 15% loss.

A pink arrow crashing through the horizontal axis on a chart.

Image source: Getty Images.

So what

There's a little nuance needed here.

First, the fact that operating expenses and (very likely) operating losses are expected to grow isn't surprising. Epizyme needs to spend heavily to support the launch of Tazverik. The drug was approved as a treatment for epithelioid sarcoma earlier this year, while the company has filed a supplemental new drug application (sNDA) to use the product to treat follicular lymphoma. The U.S. Food and Drug Administration (FDA) is expected to make a decision on the sNDA by June 18. The two indications could support peak annual sales of as much as $500 million, although it will take years to ramp up to that level.

Second, full-year 2020 operating expense guidance includes potential milestone payments Epizyme will need to make to partners if Tazverik earns additional marketing approvals.

Third, Epizyme reported $381 million in cash and marketable securities at the end of 2019. It added another $50 million in January through a stock sale. The cash position is expected to be sufficient to fund operations into 2022.

Now what

All eyes are now focused on the market launch of Tazverik. It will take years to ramp up sales, but a slow start could make investors and Wall Street analysts begin to question the drug's potential. In other words, 2020 will be either a relatively boring year or one with plenty of volatility.