10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

f

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-35945

 

EPIZYME, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

26-1349956

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

400 Technology Square, 4th Floor

Cambridge, Massachusetts

02139

(Address of principal executive offices)

(Zip code)

617-229-5872

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value

EPZM

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of shares outstanding of the registrant’s common stock as of May 4, 2022: 164,874,549 shares.

 

 


 

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements. — Unaudited

5

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

5

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

7

 

 

Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021

8

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

42

 

 

Item 4. Controls and Procedures

42

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1A. Risk Factors

43

 

 

Item 5. Other Information

45

 

 

Item 6. Exhibits

45

 

 

Signatures

46

 

Epizyme® and TAZVERIK® are registered trademarks of Epizyme, Inc. in the United States and other countries. Epizyme, Inc. has also submitted trademark applications for Epizyme™ and TAZVERIK™ in other countries. All other trademarks, service marks or other tradenames appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

 

 


 

Forward-looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These statements may be identified by such forward-looking terminology as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

our plans to research, develop and commercialize novel epigenetic therapies for patients with cancer;
the ongoing commercialization of TAZVERIK;
our sales, marketing and distribution capabilities and strategies, including for the commercialization and manufacturing of TAZVERIK and any future products;
the rate and degree of market acceptance and clinical utility of TAZVERIK and any future products;
our ongoing and planned clinical trials, including the timing of initiation and enrollment in the trials, the timing of availability of data from the trials and the anticipated results of the trials;
the timing of and our ability to apply for, obtain and maintain regulatory approvals for tazemetostat in epithelioid sarcoma, follicular lymphoma and other indications, EZM0414 and any future product candidates;
our ability to achieve anticipated milestones under our collaborations or to enter into additional collaborations;
the impact of the COVID-19 pandemic on our business, results of operations, and financial condition;
our intellectual property position;
our ability to successfully implement and execute on our changes to our commercial strategy and organization, adjustments to our operating plans, including operating expense reductions, and leadership transitions; and
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

All of our forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information as a result of various important factors. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or our Annual Report, or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q which modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our management’s discussion and analysis should be read in conjunction with these unaudited condensed consolidated financial statements and the notes thereto as well as in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report. The three months ended March 31, 2022 and 2021 are referred to as the first quarter of 2022 and 2021, respectively.

 

3


 

Note regarding certain references in this Quarterly Report on Form 10-Q

Unless otherwise stated or the context indicates otherwise, all references herein to “Epizyme,” “Epizyme, Inc.,” “we,” “us,” “our,” “our company,” “the Company” and similar references refer to Epizyme, Inc. and its wholly owned subsidiary, Epizyme Securities Corporation.

In addition, unless otherwise stated or the context indicates otherwise, all references in this Quarterly Report on Form 10-Q to “TAZVERIK (tazemetostat)” and “TAZVERIK” refer to tazemetostat in the context of the commercially-available product for which we received accelerated approval from the United States Food and Drug Administration in January 2020 for epithelioid sarcoma and in June 2020 for follicular lymphoma, as more fully described herein; whereas, unless otherwise stated or the context indicates otherwise, all references herein to “tazemetostat” refer to tazemetostat in the context of the product candidate for which we are exploring further applications and indications, as more fully described herein.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

EPIZYME, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except per share data)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,421

 

 

$

98,336

 

Marketable securities

 

 

122,309

 

 

 

78,454

 

Accounts receivable, net

 

 

5,902

 

 

 

6,572

 

Inventory

 

 

4,594

 

 

 

3,216

 

Prepaid expenses and other current assets

 

 

18,480

 

 

 

19,465

 

Total current assets

 

 

228,706

 

 

 

206,043

 

Property and equipment, net

 

 

1,295

 

 

 

1,545

 

Operating lease assets

 

 

19,286

 

 

 

20,054

 

Intangible assets, net

 

 

41,811

 

 

 

42,849

 

Restricted cash and other assets

 

 

21,088

 

 

 

18,509

 

Total assets

 

$

312,186

 

 

$

289,000

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,907

 

 

$

10,265

 

Accrued expenses

 

 

26,190

 

 

 

30,777

 

Current portion of operating lease obligation

 

 

4,870

 

 

 

4,154

 

Total current liabilities

 

 

38,967

 

 

 

45,196

 

Operating lease obligation, net of current portion

 

 

17,074

 

 

 

18,497

 

Deferred revenue

 

 

11,950

 

 

 

11,950

 

Related party long-term debt, net of debt discount

 

 

216,670

 

 

 

216,461

 

Related party liability related to sale of future royalties, net of current portion

 

 

15,824

 

 

 

15,654

 

Warrants to purchase common stock

 

 

580

 

 

 

1,930

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000 shares authorized; 338 shares issued and outstanding (equivalent to 3,378 shares of common stock upon conversion at a 10:1 ratio)

 

 

36,127

 

 

 

36,127

 

Common stock, $0.0001 par value; 225,000 shares and 150,000 shares authorized, respectively; 164,868 shares and 106,098 shares issued and outstanding, respectively

 

 

17

 

 

 

11

 

Additional paid-in capital

 

 

1,270,508

 

 

 

1,183,006

 

Accumulated other comprehensive (loss) income

 

 

(191

)

 

 

3

 

Accumulated deficit

 

 

(1,295,340

)

 

 

(1,239,835

)

Total stockholders’ equity

 

 

11,121

 

 

 

(20,688

)

Total liabilities and stockholders’ equity (deficit)

 

$

312,186

 

 

$

289,000

 

 

See notes to condensed consolidated financial statements.

5


 

EPIZYME, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(Amounts in thousands, except per share data)

 

 

Three Months Ended
March 31,

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

Product revenue, net

$

8,656

 

 

$

6,191

 

Collaboration and other revenue

 

40

 

 

 

1,440

 

Total revenue

 

8,696

 

 

 

7,631

 

Operating expenses:

 

 

 

 

 

Cost of revenue

 

2,637

 

 

 

2,853

 

Research and development

 

29,781

 

 

 

32,704

 

Selling, general and administrative

 

27,204

 

 

 

36,411

 

 Total operating expenses

 

59,622

 

 

 

71,968

 

Operating loss

 

(50,926

)

 

 

(64,337

)

Other (expense) income, net:

 

 

 

 

 

Interest expense, net

 

(5,480

)

 

 

(5,476

)

Other expense (income), net

 

(48

)

 

 

9

 

Change in fair value of warrants to purchase common stock

 

1,350

 

 

 

-

 

Related party non-cash interest expense related to sale of future royalties

 

(370

)

 

 

(470

)

Other expense, net

 

(4,548

)

 

 

(5,937

)

Loss before income taxes

 

(55,474

)

 

 

(70,274

)

Income tax provision

 

(31

)

 

 

-

 

Net loss

$

(55,505

)

 

$

(70,274

)

Other comprehensive income (loss):

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

(194

)

 

 

3

 

Comprehensive loss

$

(55,699

)

 

$

(70,271

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

Basic

$

(0.38

)

 

$

(0.69

)

Diluted

$

(0.38

)

 

$

(0.69

)

Weighted-average common shares outstanding used in net loss per share attributable to common stockholders:

 

 

 

 

 

Basic

 

144,201

 

 

 

101,790

 

Diluted

 

144,201

 

 

 

101,790

 

 

See notes to condensed consolidated financial statements.

6


 

EPIZYME, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(55,505

)

 

$

(70,274

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,298

 

 

 

1,282

 

Stock-based compensation

 

 

5,289

 

 

 

7,015

 

Amortization of discount on investments

 

 

131

 

 

 

363

 

Amortization of debt discount

 

 

208

 

 

 

188

 

Change in fair value of warrant liability

 

 

(1,350

)

 

 

 

Non-cash royalty revenue associated with the sale of future royalties

 

 

(40

)

 

 

 

Non-cash interest expense associated with the sale of future royalties

 

 

370

 

 

 

470

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

670

 

 

 

(6,659

)

Inventory, current and noncurrent

 

 

(4,141

)

 

 

(4,356

)

Prepaid expenses and other current assets

 

 

1,498

 

 

 

1,028

 

Accounts payable

 

 

(2,566

)

 

 

(4,816

)

Accrued expenses

 

 

(4,750

)

 

 

(4,719

)

Deferred revenue

 

 

 

 

 

5,000

 

Operating lease assets

 

 

767

 

 

 

1,033

 

Operating lease liabilities

 

 

(707

)

 

 

(1,128

)

Other assets and liabilities

 

 

(362

)

 

 

(2

)

Net cash used in operating activities

 

 

(59,190

)

 

 

(75,575

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(91,978

)

 

 

(120,589

)

Maturities of available-for-sale securities

 

 

47,800

 

 

 

100,389

 

Purchases of property and equipment

 

 

(10

)

 

 

(119

)

Net cash used in investing activities

 

 

(44,188

)

 

 

(20,319

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuance of common stock, net of commissions

 

 

82,257

 

 

 

 

Payment of offering costs

 

 

(185

)

 

 

 

Proceeds from stock options exercised

 

 

 

 

 

199

 

Proceeds from the issuance of shares under employee stock purchase plan

 

 

391

 

 

 

1,191

 

Net cash provided by financing activities

 

 

82,463

 

 

 

1,390

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(20,915

)

 

 

(94,504

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

99,845

 

 

 

169,724

 

Cash, cash equivalents and restricted cash, end of period

 

$

78,930

 

 

$

75,220

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

Interest paid

 

$

5,363

 

 

$

5,368

 

Cash paid for income taxes

 

$

31

 

 

$

 

Unpaid offering costs

 

$

208

 

 

$

 

Property and equipment included in accounts payable or accruals

 

$

 

 

$

10

 

 

See notes to condensed consolidated financial statements

7


 

EPIZYME, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2020

 

 

101,627,070

 

 

$

10

 

 

 

337,800

 

 

$

36,127

 

 

$

1,137,470

 

 

$

(988,713

)

 

$

3

 

 

$

184,897

 

Exercise of stock options and vesting of restricted stock units

 

 

188,000

 

 

 

 

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

199

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,943

 

 

 

 

 

 

 

 

 

6,943

 

Issuance of shares under employee stock purchase plan

 

 

146,049

 

 

 

 

 

 

 

 

 

 

 

 

1,191

 

 

 

 

 

 

 

 

 

1,191

 

Issuance of shares of common stock in lieu of board fees

 

 

7,632

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

 

 

 

72

 

Unrealized gain on available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,274

)

 

 

 

 

 

(70,274

)

Balance at March 31, 2021

 

 

101,968,751

 

 

$

10

 

 

$

337,800

 

 

$

36,127

 

 

$

1,145,875

 

 

$

(1,058,987

)

 

$

6

 

 

$

123,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

106,097,528

 

 

$

11

 

 

 

337,800

 

 

$

36,127

 

 

$

1,183,006

 

 

$

(1,239,835

)

 

$

3

 

 

$

(20,688

)

Issuance of common stock (net of commissions and offering costs of $507)

 

 

58,139,825

 

 

 

6

 

 

 

 

 

 

 

 

 

81,822

 

 

 

 

 

 

 

 

 

81,828

 

Vesting of restricted stock units

 

 

276,761

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,238

 

 

 

 

 

 

 

 

 

5,238

 

Issuance of shares under employee stock purchase plan

 

 

308,473

 

 

 

 

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Issuance of shares of common stock in lieu of board fees

 

 

45,109

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

51

 

Unrealized gain on available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194

)

 

 

(194

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,505

)

 

 

 

 

 

(55,505

)

Balance at March 31, 2022

 

 

164,867,696

 

 

 

17

 

 

 

337,800

 

 

 

36,127

 

 

 

1,270,508

 

 

 

(1,295,340

)

 

 

(191

)

 

 

11,121

 

 

See notes to condensed consolidated financial statements.

8


 

EPIZYME, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. The Company

Epizyme, Inc. (collectively referred to with its wholly owned, controlled subsidiary, Epizyme Securities Corporation, as “Epizyme” or the “Company”) is a commercial-stage biopharmaceutical company that is committed to rewriting treatment for people with cancer through the discovery, development, and commercialization of novel epigenetic medicines. The Company aspires to change the standard of care for patients and physicians by developing targeted medicines with fundamentally new mechanisms of action directed at specific causes of hematological malignancies and solid tumors.

Through March 31, 2022, in addition to revenues from product sales, the Company has raised an aggregate of $1,650.2 million to fund its operations. This includes $268.8 million of non-equity funding through its collaboration agreements, $368.1 million of funding, consisting of $150.0 million in equity funding received through agreements with RPI Finance Trust ("RPI"), and $218.1 million in debt financing received through a loan agreement with BioPharma Credit Investments V (Master) LP and BPCR Limited Partnership (as transferee of BioPharma Credit Investments V (Master) LP’s interest as a lender) (the "Lenders"), $937.3 million from the sale of common stock and series A convertible preferred stock (the “Series A Preferred Stock”) in the Company’s public offerings and at-the-market offerings and $76.0 million from the sale of redeemable convertible preferred stock in private financings prior to the Company’s initial public offering in May 2013. As of March 31, 2022, the Company had $199.7 million in cash, cash equivalents and marketable securities.

In 2020, the Company’s EZH2 inhibitor, tazemetostat, was approved in the United States as TAZVERIK for the treatment of epithelioid sarcoma ("ES"), and follicular lymphoma ("FL"). Commercial sales of TAZVERIK for the treatment of ES commenced in the first quarter of 2020 and commercial sales of TAZVERIK for the treatment of FL commenced in the end of the second quarter of 2020.

The Company commenced active operations in early 2008. Since its inception, the Company has generated an accumulated deficit of $1,295.3 million through March 31, 2022 and will require substantial additional capital to fund its research, development, and commercialization efforts. The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, risks of failure of commercialization, clinical trials and preclinical studies, the need to obtain additional financing to fund the future development and commercialization of tazemetostat and the rest of its pipeline, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of TAZVERIK and of any product candidates that may be approved in the future, the impact of the COVID-19 pandemic on the Company’s business, results of operations, and financial condition, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and ability to transition from clinical-stage manufacturing to commercial-stage production, marketing, and sale of products.

 

Operating Cost Reduction

9


 

In August 2021, the Company implemented a cross-functional reduction of approximately 11% of its then current workforce under a cost reduction plan. Affected employees were offered separation benefits, including severance payments along with temporary healthcare coverage assistance. The severance and termination-related costs totaled approximately $2.0 million, $1.6 million of which were recorded as selling general and administrative expenses and $0.4 million of which was recorded as research and development expenses in the third quarter of 2021. The Company expects that payments of these costs will be made through August 2022.

In March 2022, the Company implemented further reductions of its expenses, including a pipeline reprioritization. Given the breadth of the Company’s then-current tazemetostat clinical development program, the Company decided to discontinued enrollment in its Phase 2 study of tazemetostat in combination with rituximab with FL in the third-line or later treatment settings (SYMPHONY-2, EZH-1401), as well as in its Phase 1/1b basket study evaluating tazemetostat combinations in patients with solid tumors (EZH-1301). The Company has enrolled five patients in the EZH-1401 study and one patient in the EZH-1301 study and plans to continue to follow the patients currently enrolled in each of these two studies. The decision to discontinue these studies was based on evolving market dynamics and a continued focus on optimizing the Company’s investments and eliminating potentially overlapping studies. The Company continues to study tazemetostat in combination with other therapies for both hematologic and solid tumor malignancies, both in ongoing Company-sponsored studies as well as investigator-initiated studies. In addition, as part of the cost reduction plan, the Company implemented a cross-functional workforce reduction of approximately 12% of the Company’s then-current employees. The severance and termination related costs totaled approximately $2.5 million, $1.7 million of which were recorded as selling general and administrative expenses and $0.8 million of which were recorded as research and development expenses in the first quarter of 2022. The Company expects that payments of these costs will be made through December 2022.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or the Annual Report.

The unaudited condensed consolidated financial statements include the accounts of Epizyme, Inc. and its wholly owned, controlled subsidiary, Epizyme Securities Corporation. All intercompany transactions and balances of subsidiaries have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the condensed consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The three months ended March 31, 2022 and 2021 are referred to as the first quarter of 2022 and 2021, respectively. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Use of Estimates

The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, as of the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results and outcomes may differ materially from management’s estimates, judgments and assumptions.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements in the Annual Report and are updated below as necessary.

10


 

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued and such doubt is not alleviated by the Company’s plans or when the Company's plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs, and comparing those needs to its available cash, cash equivalents and marketable securities.

The Company has recurring losses and expects to have recurring losses for the foreseeable future with the continued commercialization of TAZVERIK in ES and FL, the development of tazemetostat in other indications, and the development of the Company’s other product candidates. In addition, the Company has experienced and continues to experience challenges in the continued commercialization of TAZVERIK resulting from the ongoing COVID-19 pandemic, which the Company believes has had an adverse impact on TAZVERIK revenues. In response to the challenges that the Company has continued to face since the Company commenced its launch of TAZVERIK in FL in June 2020, the Company implemented an operational cost reduction plan in August 2021, implemented further expense reductions in March 2022, and continues to evaluate its costs on an ongoing basis with the intention to streamline such costs.

The analysis of the Company’s ability to continue as a going concern for the first quarter of 2022 included consideration of the Company’s current cash needs, including its research and development plans, commercialization activities associated with the continued commercialization of TAZVERIK in the ES and FL indications, its existing debt service obligations, anticipated cost savings resulting from its operational cost reduction plans, including ongoing efforts to eliminate costs not related to the Company’s strategic focus. The analysis included forecasted product revenues from sales of TAZVERIK. Such estimates of future sales contain significant judgment as TAZVERIK was first launched in the first half of 2020 and there is little history with which to base such estimates. In addition, the Company’s ongoing efforts to eliminate costs not related to the Company’s strategic focus contains uncertainties as to whether the Company can attain such benefits. Based on the analysis, the Company concluded that its available cash, cash equivalents and marketable securities as of March 31, 2022 will be sufficient to fund current planned operations and capital expenditure requirements and pay our debt service obligations as they become due into the third quarter of 2023, which is at least 12 months from the filing date of this Quarterly Report on Form 10-Q with the SEC. As a result, the Company concluded that it did not identify conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued. The Company’s current operating plan is based on assumptions that may prove to be wrong, and the Company could use its capital resources sooner than it expects, in which case the Company would evaluate further reductions in its expenses or obtaining additional financing sooner than it otherwise would, which additional financing may not be available or may only be available on terms that are not acceptable to the Company.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The Company adopted ASU 2020-06 effective as of January 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.

Revenue Recognition

 

The Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. For a further discussion of accounting for net product revenue see Note 3, Product Revenue, Net.

 

Other Revenue

11


 

 

Other revenue consists of revenue from the sales of tazemetostat active pharmaceutical ingredient ("API"), drug product to the Company’s licensees or collaborators and non-cash royalty revenue related to sale of future royalties. The Company recognizes revenue on tazemetostat API and drug product when control has transferred under the terms of each agreement.

Cost of Revenues

 

Cost of revenues primarily consists of costs related to the sales of TAZVERIK and sales of tazemetostat API and drug product to the Company’s licensees or collaborators. These costs include materials, labor, manufacturing overhead, amortization of milestone payments, and royalties payable on net sales of TAZVERIK. Cost of revenues for the three months ended March 31, 2021 included approximately $0.8 million related to sales of tazemetostat drug product. There were no sales of tazemetostat drug product during the three months ended March 31, 2022.

Accounts Receivable

The Company extends credit to customers based on its evaluation of the customer’s financial condition. The Company records receivables for all billings when amounts are due under standard terms. Accounts receivable are stated at amounts due net of applicable prompt pay discounts and other contractual adjustments as well as an allowance for doubtful accounts. The Company assesses the need for an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write off accounts receivable when the Company determines that they are uncollectible. In general, the Company has experienced no significant collection issues with its customers.

Inventory

 

The Company outsources the manufacturing of TAZVERIK and uses contract manufacturers to produce the raw and intermediate materials used in the production of TAZVERIK as well as the finished product. The Company currently has one supplier qualified for each step in the manufacturing process and is in the process of qualifying additional suppliers.

Inventory is composed of raw materials, intermediate materials, which are classified as work-in-process, and finished goods, which are goods that are available for sale. The Company states inventory at the lower of cost or net realizable value with the cost based on the first-in, first-out method. Inventory is classified as long-term when it is expected to be utilized beyond the Company’s normal operating cycle and is included in restricted cash and other assets on the Company's condensed consolidated balance sheets. If the Company identifies excess, obsolete or unsalable items, it writes down its inventory to its net realizable value in the period in which the impairment is identified. These adjustments are recorded based upon various factors related to the product, including the level of product manufactured by the Company, the level of product in the distribution channel, current and projected demand, the expected shelf-life of the product and firm inventory purchase commitments. Shipping and handling costs incurred for inventory purchases are included in inventory costs and costs incurred for product shipments are recorded as incurred in cost of revenue.

Intangible Assets, Net

Intangible assets consist of capitalized milestone payments made to third parties under an in-license of patent rights upon receiving regulatory approval of TAZVERIK. The finite-lived intangible assets are being amortized on a straight-line basis over the expected time period the Company will benefit from the in-licensed rights, which is generally the patent life. Intangible assets are recorded at cost at the time of their acquisition and are stated in the Company’s condensed consolidated balance sheets net of accumulated amortization and impairments, if applicable. The amortization expense is recognized as cost of revenue in the Company’s condensed consolidated statement of operations and comprehensive loss. During 2020 the Company paid a total of $50.0 million in milestone payments under its agreement with Eisai, Co., Ltd. (“Eisai”) following regulatory approval of tazemetostat for ES and FL. These regulatory milestones have been capitalized as intangible assets.

 

The following table presents intangible assets as of March 31, 2022 (in thousands):

 

 

 

March 31, 2022

 

 

Estimated useful
life (years)

 

In-licensed rights

 

$

50,000

 

 

 

12.2

 

Less: accumulated amortization

 

 

(8,189

)

 

 

 

Total intangible asset, net

 

$

41,811

 

 

 

 

 

12


 

The Company recorded approximately $1.0 million in amortization expense related to intangible assets, using the straight-line methodology, during the three months ended March 31, 2022 and March 31, 2021. Estimated future amortization expense for intangible assets for the remainder of the year ended December 31, 2022 is $3.2 million and approximately $4.2 million per year thereafter.

 

The Company assesses its intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the Company's condensed consolidated balance sheets. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value