Our management's discussion and analysis of our financial condition and results
of operations are based upon our 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, or GAAP, and with Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended. This discussion and analysis should be read in
conjunction with these condensed consolidated financial statements and the notes
thereto included elsewhere in this Quarterly Report on Form 10-Q. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Quarterly Report on Form 10-Q, including information with respect to our
plans and strategy for our business, includes forward-looking statements that
involve risks and uncertainties. As a result of many factors, including those
factors set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form
10-K for the year ended December 31, 2021 filed with the Securities and Exchange
Commission on March 1, 2022 and in Part II, Item 1A. Risk Factors of this
Quarterly Report on Form 10-Q, our actual results could differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Note on the COVID-19 Pandemic
The ongoing COVID-19 pandemic continues to have widespread, evolving, and
unpredictable impacts on global economies, supply chains, financial markets,
business practices and societies. The complex challenges created by the COVID-19
pandemic have had an adverse impact on our business, operations, and financial
performance, and as such we continue to take steps to respond to these
challenges and adjust our commercial strategy and operating plans accordingly.
We believe that the COVID-19 pandemic has had an adverse impact on sales of
TAZVERIK since the June 2020 FDA approval of TAZVERIK for FL. Our commercial and
medical affairs field teams continue to use virtual formats as well as in-person
interactions, where possible, to allow us to serve the needs of healthcare
providers, patients and other stakeholders. However, access to prescribers
remains restrictive, and we expect these challenges to continue.
In response, we have taken steps to adjust our commercial strategy and continue
to further refine our commercial strategy, recognizing that some of the changes
brought about by the COVID-19 pandemic, such as ongoing restrictions to access
prescribers by traditional sales personnel, will likely persist after the
resolution of the pandemic. We are evolving our commercial strategies and
deployment of resources to address these changes in market dynamics as we seek
to increase awareness of TAZVERIK in ES and FL.
Although the initiation, enrollment and completion of our ongoing and planned
clinical trials have not been materially disrupted, we have experienced some
delays in clinical trial startup activities due to what we believe to be mostly
COVID-19 related capacity constraints and resulting delays in the packaging and
labeling of clinical drug supply at a third-party manufacturer. We are aware of
the impact that COVID-19 continues to have on other clinical trials in our
industry and there is a risk of material impact on the conduct of our clinical
trials as well. We are continuing to work with our clinical trial sites as we
seek to ensure study continuity, enable medical monitoring, facilitate study
procedures and maintain clinical data and records, including the use of local
laboratories for testing, home delivery of study drug and remote data and
records monitoring.
To date, the COVID-19 pandemic has not had a material impact on our commercial
supply chain, and we currently have a consistent supply of tazemetostat and
TAZVERIK that we believe will cover our ongoing clinical development as well as
the ongoing commercialization for ES and FL. From time to time, however, we have
experienced some occasional delays in connection with our clinical supply,
including delays related to packaging and labeling. As a proactive measure, we
have taken certain steps to try to reduce the risk to our supply chain, such as
advancing orders for long-lead items in anticipation of potential future delays
or shortages. Because the ongoing COVID-19 pandemic could materially adversely
impact our suppliers and result in delays or disruptions in our current or
future supply chain, we are continuing to monitor and manage our supply chain
accordingly.
We are implementing a multi-stage return to office plan. In October 2021 we
opened our facilities to all employees who expressed interest in participating
in a return-to-office pilot program, and starting in April 2022 we encouraged
all Cambridge-based employees to return to the office in a hybrid model. In
leveraging feedback from our pilot program, we have embraced a hybrid
virtual/in-office model that will balance health, safety, and flexibility with
the benefits of in-office work and collaboration as we safely welcome our team
back to the office. Our hybrid approach will continue to be based primarily on
guidance from federal, state and local government authorities, and we expect
that some form of a hybrid model will continue to exist for us in the future.
We are closely monitoring the impact of the COVID-19 pandemic and related
developments on our business, operations and financial performance. We plan to
continue to assess the potential duration, scope and severity of the COVID-19
pandemic and its impacts on our business, operations and financial performance,
and to continue to work closely with our third-party vendors, collaborators and
other parties in order to seek to continue to advance our efforts with respect
to the commercialization of TAZVERIK and to continue
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to advance the development of EZM0414 and our pipeline, while making the health
and safety of our employees and their families, healthcare providers, patients
and communities a top priority. Additionally, we continue to monitor the impact
of conditions globally, including for example the impact of lockdowns in China,
on drug supply and research activities. Due to the evolving and uncertain global
impacts of the COVID-19 pandemic, however, we cannot precisely determine or
quantify the impact that this pandemic has had on our business, operations and
financial performance to date or the impact that this pandemic will have in 2022
and beyond.
Please refer to our risk factors set forth in Part I, Item 1A. Risk Factors of
our Annual Report on Form 10-K for the year ended December 31, 2021 for further
discussion of risks related to the COVID-19 pandemic.
Operating Expense Reductions
In addition to organizational changes and cross-functional headcount reduction
that we implemented in August 2021, in March 2022, we implemented further
reductions of our expenses, including a cross-functional workforce reduction of
approximately 12% of our then-current employees, as well as a pipeline
reprioritization. Given the breadth of our then-current tazemetostat clinical
development program, we discontinued enrollment in our 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 our Phase 1/1b basket
study evaluating tazemetostat combinations in patients with solid tumors
(EZH-1301). We have enrolled five patients in the EZH-1401 study and one patient
in the EZH-1301 study and plan 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 our
investments and eliminating potentially overlapping studies. We continue 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.
As part of those headcount reductions and our pipeline reprioritization, we have
implemented changes to our commercial strategy, to our medical affairs and
clinical development teams and to our broader organization. We remain focused on
accelerating commercial adoption of TAZVERIK in appropriate patients and
optimizing our investment of company resources in important clinical trials and
programs, including our SYMPHONY-1 (EZH-302), CELLO-1 (EZH-1101), ARIA
(EZH-1501) and SET-101 trials.
The severance and termination-related costs associated with the March 2022
workforce reduction were approximately $2.5 million. We recorded these costs in
the first quarter of 2022 and expect that payments of these costs will be made
through the end of the fourth quarter of 2022.
We plan to continue to implement our broader operational expense reduction
effort, and to monitor and seek opportunities to further reduce our operating
expenses.
Overview
We are 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. We aspire 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.
We have one approved product, TAZVERIK (tazemetostat), which was granted
accelerated approval by the FDA in January 2020 for ES and in June 2020 for FL.
Our focus is on maximizing our effectiveness as a commercial organization to
achieve adoption of TAZVERIK among as many appropriate patients as possible,
including in earlier treatment lines and in combination regimens with the data
to support this expanded use; building on TAZVERIK's pipeline-in-a-drug
potential; and expanding our pipeline and evolving oncology portfolio, including
with SET-101, our first-in-human Phase 1/1b trial of EZM0414, our novel,
first-in-class, oral SETD2 inhibitor. We are leveraging our drug discovery
platform and expertise as a leader in epigenetics, as well as our team's deep
experience across clinical development and commercialization to execute on our
strategy.
In January 2020, the FDA granted accelerated approval of TAZVERIK
(tazemetostat), an oral, first in class, selective small molecule inhibitor of
the EZH2 histone methyltransferase, or HMT, for the treatment of adult and
pediatric patients aged 16 years and older with metastatic or locally advanced
ES not eligible for complete resection. This approval was based on overall
response rate and duration of response data shown in the ES cohort of our Phase
2 trial in patients with INI1-negative tumors. We continue to make TAZVERIK
available to eligible patients and their physicians in the United States.
As part of the accelerated approval for ES, continued approval for this
indication is contingent upon verification and description of clinical benefit
in a confirmatory trial. To provide this confirmatory evidence to support a full
approval of TAZVERIK for this indication, we are conducting a single,
randomized, controlled Phase 1b/3 confirmatory trial in the United States
(EZH-301) assessing tazemetostat in combination with doxorubicin compared with
doxorubicin plus placebo as a front-line treatment for ES. The trial is
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expected to enroll approximately 152 patients. We have completed the planned
enrollment in the Phase 1b safety run-in portion of the trial and the Phase 3
efficacy portion of the trial is open for accrual. We reported safety and
preliminary activity data from the patients in the safety run-in portion of the
EZH-301 trial at the American Society of Clinical Oncology (ASCO) Annual Meeting
in June 2021.
In June 2020, the FDA approved a supplemental New Drug Application, or sNDA, for
TAZVERIK for adult patients with relapsed or refractory (R/R) FL whose tumors
are positive for an EZH2 mutation as detected by an FDA-approved test and who
have received at least two prior systemic therapies, and adult patients with
relapsed or refractory FL who have no satisfactory alternative treatment
options. These indications were approved under accelerated approval with a
priority review, based on overall response rate and duration of response data
shown in the FL cohorts of our Phase 2 clinical trial in patients with EZH2
mutations and wild-type EZH2. We continue to make TAZVERIK available to eligible
patients and their physicians in the United States.
As part of the accelerated approval for FL, continued approval for these R/R FL
indications is contingent upon verification and description of clinical benefit
in a confirmatory trial. To provide this confirmatory evidence to support a full
approval of TAZVERIK for these indications, we are conducting a single global,
randomized, adaptive Phase 1b/3 confirmatory trial (EZH-302, SYMPHONY-1)
assessing the combination of tazemetostat with "R2" (lenalidomide and
rituximab), an approved chemotherapy-free treatment regimen, compared with R2
plus placebo for R/R FL patients in the second-line or later treatment setting.
We plan to leverage the confirmatory trial and also conduct post-marketing
commitments to expand the TAZVERIK label into the second-line treatment setting.
In December 2021 we presented updated safety and activity data from the Phase 1b
safety run-in portion of this confirmatory trial at the 2021 American Society of
Hematology (ASH) Annual Meeting. We continue to follow the 40 patients in the
Phase 1b safety run-in portion of the trial, and recently, SYMPHONY-1 was
accepted for a poster presentation, which will be shared at the upcoming ASCO
Annual Meeting in Chicago in June 2022 and will include updated data from the
Phase 1b cohort of SYMPHONY-1. We also plan to present additional updated data
from the safety run-in portion of the trial later in 2022.
We expect that the Phase 3 portion of the SYMPHONY-1 trial will be a global,
randomized and adaptive confirmatory trial in 500 patients. Based on the Phase
1b safety run-in results, in December 2021 we submitted a protocol amendment to
the FDA with 800 mg twice-daily as the recommended tazemetostat dose (RP3D) for
the Phase 3 portion of the trial and have completed the 30-day voluntary waiting
period following submission of the protocol amendment for 800 mg RP3D without
any objection from the FDA. In March 2022, we dosed the first patient in the
randomized Phase 3 portion of the SYMPHONY-1 trial. The SYMPHONY-1 trial is open
globally and is actively screening and enrolling patients. The primary endpoint
for the Phase 3 portion of the trial will be based on progression free survival
as determined by investigator. Based on discussions with the FDA, this portion
of the trial will include two interim analyses, the first of which is for
futility only and the second of which will be conducted for futility, and if 65%
of progression free survival events have occurred, the trial will also include
an efficacy evaluation. In July 2021 China's Center for Drug Evaluation, or CDE,
approved the Investigational New Drug Application, or IND, we filed in China for
SYMPHONY-1.
Through our planned development efforts, our intention is to eventually make
TAZVERIK available in all lines of treatment for patients with FL. In
collaboration with The Lymphoma Study Association, or LYSA, and based on
clinical activity observed with tazemetostat in combination with R-CHOP
(rituximab, cyclophosphamide, doxorubicin, vincristine and prednisolone) as a
front-line treatment for patients with high risk diffuse large B-cell lymphoma,
or DLBCL, LYSA is conducting a Phase 1b/2 clinical trial to evaluate this
combination as a front-line treatment for high-risk patients with FL and DLBCL.
The Phase 1b portion of the trial has completed, and patient enrollment in the
Phase 2 portion of this trial is nearly complete, with enrollment in the FL arm
complete. In collaboration with LYSA, we expect that top-line results from the
Phase 2 portion of this trial will be presented at a medical conference in the
second half of 2022. We are also finalizing plans for investigator-sponsored
studies to evaluate tazemetostat in combination with venetoclax or BTK
inhibitors for the treatment of patients with FL in the third-line or later
treatment settings.
We are also developing tazemetostat for the treatment of a broad range of other
cancer types in multiple treatment settings. Tazemetostat has shown meaningful
clinical activity as an investigational monotherapy in multiple cancer
indications and has been generally well-tolerated across clinical trials to
date. We believe tazemetostat is a "pipeline in a product" opportunity and plan
to explore its potential utility in additional indications and combinations.
There are four areas where we see the greatest potential for tazemetostat, all
of which are based on a strong scientific hypothesis and are for patients
suffering from diseases that would benefit from a new effective and safe
treatment option, including:
•
Lymphomas and B-cell malignancies, such as DLBCL, mantle cell lymphoma, or MCL,
multiple myeloma and others;
•
Molecularly defined solid tumors, such as chordoma, melanoma, mesothelioma, and
tumors harboring an EZH2 or SWI/SNF alteration;
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•
PARPi-resistant tumors, such as castration-resistant prostate cancer, small cell
lung cancer, and others; and
•
Immuno-oncology sensitive tumors, such as small cell lung cancer, prostate
cancer and others.
As part of these broader tazemetostat development efforts, we are conducting a
global, multi-center, open-label randomized Phase 1b/2 trial (EZH-1101,
CELLO-1). The Phase 2 efficacy portion of the CELLO-1 trial, which is evaluating
tazemetostat plus enzalutamide compared to enzalutamide monotherapy in patients
with metastatic castration-resistant prostate cancer, or mCRPC, is 85% enrolled
toward a target of 80 patients and we expect to complete enrollment in the
randomized Phase 2 portion of the trial in 2022. We plan to present updated data
from the safety run-in portion of the trial as well as interim data from the
Phase 2 portion of the trial in the second half of 2022.
To efficiently evaluate tazemetostat's potential safety and efficacy across
multiple types of hematological malignancies, we initiated a signal-finding
Phase 1b/2 basket study (ARIA, EZH-1501) evaluating tazemetostat with multiple
combinations in hematological malignancies in December 2021. We continue to
screen patients for enrollment in this study, and we plan to provide updates in
the second half of 2022.
We own the global development and commercialization rights to tazemetostat
outside of Japan and greater China. Eisai Co. Ltd, or Eisai, holds the rights to
develop and commercialize tazemetostat in Japan, and Hutchmed Limited (formerly
known as Hutchison China MediTech Investment Limited), or HutchMed, holds
certain rights to develop and commercialize tazemetostat in greater China.
TAZVERIK is available to eligible patients in the United States via a specialty
distribution network. Through this specialty distribution network, we sell
TAZVERIK principally to a limited number of specialty pharmacies, which dispense
the product directly to patients, and specialty distributors, which in turn sell
the product to hospital pharmacies and community practice pharmacies for the
treatment of patients. To commercialize TAZVERIK for the approved ES and FL
indications in the United States, we have built a focused field presence and
marketing capabilities.
On August 7, 2021, we entered into a strategic collaboration pursuant to a
license agreement with HutchMed through which we granted a license to HutchMed
for the co-exclusive (with us) development and exclusive commercialization of
tazemetostat, either as monotherapy or as a part of combinations with other
therapies, including HutchMed proprietary compounds, agreed by us and HutchMed
for the treatment of ES, FL and DLBCL in humans, and any additional indications
agreed to by us and HutchMed in mainland China, Taiwan, Hong Kong and Macau, or
the HutchMed Territory. On May 6, 2022, we agreed with HutchMed to amend the
terms of the HutchMed license agreement to clarify certain development and
regulatory responsibilities of the parties in the HutchMed Territory, among
other things.
For other geographies outside the United States, we are evaluating the most
efficient path to obtain marketing approval, commercialize and distribute
TAZVERIK to reach patients, including pursuing potential strategic
collaborations. Based on comparators and the regulatory landscape, we have
decided not to pursue marketing approval of tazemetostat as monotherapy from the
European Medicines Agency, or EMA at this time.
Beyond tazemetostat, we are utilizing our drug discovery platform to progress
preclinical efforts and discover and identify additional product candidates to
expand our pipeline of inhibitors against several classes of chromatin modifying
proteins, or CMPs, including HMTs, histone acetyltransferases, or HATs, and
helicases.
Our most advanced product candidate, EZM0414, is a novel first-in-class oral
inhibitor of the SETD2 HMT.
SETD2 is an HMT that plays multiple important roles in oncogenesis. Based on the
potential of SETD2 inhibition demonstrated in multiple preclinical settings,
including multiple myeloma, and in particular high risk t(4;14) multiple myeloma
and in other B-cell malignancies such as DLBCL, as well as in combination with
existing and emerging therapies including tazemetostat, we submitted an IND for
EZM0414 to the FDA in July 2021. We received "study may proceed" from the FDA
with respect to our IND for EZM0414 in July 2021. In October 2021, EZM0414 was
granted Fast Track designation by the FDA in adult patients with relapsed or
refractory DLBCL and in January 2022 we received orphan drug designation from
the FDA for EZM0414 for the treatment of multiple myeloma. In the fourth quarter
of 2021, we initiated a Phase 1/1b trial (SET-101) intended to evaluate the
safety and optimize the dose and schedule of EZM0414 in R/R multiple myeloma and
DLBCL patients. The Phase 1 portion of our SET-101 trial is a Bayesian optimal
interval dose escalation design and includes six planned dose levels ranging
from 100 mg to 900 mg once daily. Once we have optimized the dose, we then
expect to expand the trial to two patient cohorts in multiple myeloma: t(4;14)
multiple myeloma and non t(4;14) multiple myeloma. Based on dose optimization
data from the trial, we may add a third patient cohort in DLBCL. We continue to
screen patients for enrollment for the Phase 1 dose escalation portion of the
SET-101 trial, which we expect will enroll between 30-36 patients. We plan to
provide updates on the trial in the second half of 2022.
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To date we have entered into various strategic collaborations, including with
Eisai, HutchMed, Roche and other third parties. As one of several key aspects of
our strategy, we plan to continue to leverage our existing collaborations and to
seek to identify new potential strategic collaborations to further support and
grow our business in and outside of the United States.
Through March 31, 2022, in addition to revenues from product sales, we have
raised an aggregate of $1,650.2 million to fund our operations. This includes
$268.8 million of non-equity funding through our collaboration agreements,
$368.1 million of funding, consisting of $150.0 million in equity funding
received through agreements with RPI Finance Trust, or 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), or the
Lenders, $937.3 million from the sale of common stock and Series A Preferred
Stock in our public and at-the-market offerings and $76.0 million from the sale
of redeemable convertible preferred stock in private financings prior to our
initial public offering in May 2013.
As of March 31, 2022, we had $199.7 million in cash, cash equivalents and
marketable securities. In January 2022, the Company raised approximately $79.5
million in net proceeds (after deducting underwriting discounts and commissions
and estimated offering costs) from the sale of 56,666,667 shares of its common
stock in a public offering at a price of $1.50 per share.
We commenced active operations in early 2008, and since inception, have incurred
significant operating losses. Our net loss was $55.5 million for the three
months ended March 31, 2022. As of March 31, 2022, our accumulated deficit
totaled $1,295.3 million. Notwithstanding our sales of TAZVERIK, we expect to
continue to incur significant expenses and operating losses over the next
several years. Our net losses may fluctuate significantly from quarter to
quarter and year to year. We expect our expenses to increase in connection with
our ongoing activities, particularly as we expect to incur significant
commercialization expenses related to product manufacturing, marketing, sales
and distribution. In addition, we expect our expenses to increase as we fund our
tazemetostat development program; make any milestone and royalty payments
provided for and achieved under the amended and restated collaboration and
license agreement with Eisai; pay interest and principal associated with our
amended and restated loan agreement with BioPharma Credit Investments V (Master)
LP, BPCR Limited Partnership and BioPharma Credit PLC, or the Amended and
Restated Loan Agreement; and continue research and development and initiate
clinical trials of, and seek regulatory approval for, any future product
candidates.
Funding Agreements with BioPharma Credit Investments V (Master) LP, BPCR Limited
Partnership, BioPharma Credit PLC and RPI Finance Trust
We executed the RPI Purchase Agreement on November 4, 2019. Pursuant to the RPI
Purchase Agreement, we sold to RPI 6,666,667 shares of our common stock and a
warrant to purchase up to 2,500,000 shares of our common stock at an exercise
price of $20.00 per share, or the Common Stock Warrant. We also sold our rights
to receive royalties from Eisai with respect to net sales by Eisai of
tazemetostat products in Japan, or the Japan Royalty, pursuant to the amended
and restated collaboration and license agreement between us and Eisai, dated as
of March 12, 2015, or the Eisai License Agreement. In consideration for the sale
of shares of our common stock, the Common Stock Warrant and the Japan Royalty,
RPI paid us $100.0 million upon the closing of the RPI Purchase Agreement in
November 2019. In addition, RPI agreed, in connection with RPI's acquisition
from Eisai of the right to receive royalties from us under the Eisai License
Agreement, to reduce our royalty obligation by low single digits upon the
achievement of specified annual net sales levels. We also had the option to sell
to RPI $50.0 million of shares of common stock for an 18-month period beginning
November 4, 2019, or the Put Option. On February 11, 2020, we sold 2,500,000
shares of common stock to RPI for an aggregate of $50.0 million in proceeds at a
sale price of $20.00 per share of common stock pursuant to the Put Option.
On November 4, 2019, we also entered into a Loan Agreement with BioPharma Credit
PLC, or the Collateral Agent, and the Lenders, providing for up to $70.0 million
in secured term loans to be advanced in up to three tranches, or the Loan
Agreement. We borrowed $70.0 million in the aggregate under the three tranches
pursuant to the Loan Agreement.
On November 3, 2020, we, the Collateral Agent and the Lenders amended and
restated the Loan Agreement, or, as amended and restated, the Amended and
Restated Loan Agreement. The Amended and Restated Loan Agreement provides for,
among other things, an additional secured term loan facility of $150.0 million,
or the Tranche D Loan. On November 18, 2020, we borrowed the Tranche D Loan.
The obligations under the Amended and Restated Loan Agreement remain secured by
a first priority security interest that was granted at the time of the Loan
Agreement in and a lien on substantially all of our assets, subject to certain
exceptions.
The Amended and Restated Loan Agreement contains certain customary
representations and warranties, affirmative and negative covenants and events of
default applicable to us and our subsidiaries. If an event of default occurs and
is continuing, the Collateral Agent under the Amended and Restated Loan
Agreement may, among other things, accelerate the loans and foreclose on the
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collateral. See Note 14, Long-Term Debt, of the notes to our consolidated
financial statements included in this Quarterly Report on Form 10-Q for a
description of the key terms of the Amended and Restated Loan Agreement.
Results of Operations
Revenues
The following is a comparison of total revenues for the three months ended March
31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021 Change
(In millions)
Product revenues, net $ 8.7 $ 6.2 $ 2.5
Collaboration and other revenue 0.0 1.4 $ (1.4 )
Total revenues $ 8.7 $ 7.6 $ 1.1
Product Revenues, net
Net product revenues represent U.S. sales from our sole commercial product,
TAZVERIK, which was first approved by the FDA on January 23, 2020, less
allowances and accruals. During the three months ended March 31, 2022 and 2021,
net product revenues were $8.7 million and $6.2 million, respectively. The $2.5
million increase reflects the increase in TAZVERIK product sales following its
approval TAZVERIK for ES in January 2020 and the approval of TAZVERIK for FL in
June 2020. The increase includes product revenue during the 2022 period of $0.5
million related to the sale of commercial product by one of our customers to a
third-party pharmaceutical company for use in its clinical trials. Sales
allowances and accruals consisted of patient financial assistance, distribution
fees, discounts, and chargebacks.
Collaboration and Other Revenue
Our collaboration and other revenue during the periods included amounts
recognized from deferred revenue related to upfront payments for licenses or
options to obtain licenses in the future, research and development services
revenue earned, milestone payments earned under collaboration and license
agreements with our collaboration partners and revenue from the sale of
tazemetostat active pharmaceutical ingredient (API) and drug product to our
licensees and collaborators.
In the three months ended March 31, 2022 and 2021, we recognized $0.0 and $1.4
million, respectively, in collaboration and other revenue. The collaboration and
other revenue in the three months ended March 31, 2022 consists of less than
$0.1 million of non-cash royalties from net sales of tazemetostat in Japan. The
collaboration and other revenue of $1.4 million in the three months ended March
31, 2021 was recognized as part of our supply agreement with Eisai for the
manufacture and supply of tazemetostat and technical support services.
Cost of Revenue
The following is a comparison of cost of revenue for the three months ended
March 31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021 Change
(In millions)
Cost of product revenue $ 2.6 $ 2.1 $ 0.5
Cost of other revenue - 0.8 (0.8 )
Total cost of revenue $ 2.6 $ 2.9 $ (0.3 )
The cost of revenue primarily consists of costs related to our product revenue
for the sales of TAZVERIK and sales of tazemetostat API and finished goods to
our collaborators or licensors. These costs include materials, labor,
manufacturing overhead, amortization of milestone payments, and royalties
payable on net sales of TAZVERIK. During the three months ended March 31, 2022
and 2021, the cost of product revenue was $2.6 million and $2.1 million,
respectively, and consisted of $0.3 million and $0.1 million, respectively, in
costs associated with manufacturing TAZVERIK, $1.0 million and $1.0 million,
respectively, in amortization expense related to the two $25.0 million milestone
payments we paid under our agreement with Eisai upon regulatory approval of
TAZVERIK
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for ES and upon regulatory approval of TAZVERIK for FL, and $1.3 million and
$0.9 million, respectively, in worldwide royalties due under the Eisai License
Agreement on net sales of TAZVERIK. Cost of other revenue during the three
months ended March 31, 2021 consisted of $0.8 million of costs related to sales
of tazemetostat drug product to Eisai. We did not have cost of other revenues in
the three months ended March 31, 2022.
Research and Development
Research and development expenses consist of expenses incurred in performing
research and development activities, including clinical trials and related
clinical manufacturing expenses, fees paid to external providers of research and
development services, third-party clinical research organizations, or CROs,
compensation and benefits for full-time research and development employees,
facilities expenses, overhead expenses, and other outside expenses. Most of our
research and development costs are external costs, which we track on a
program-by-program basis. Our internal research and development costs are
primarily compensation expenses for our full-time research and development
employees, including stock-based compensation expense.
The following is a comparison of research and development expenses for the three
months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021 Change
(In millions)
Research and development $ 29.8 $ 32.7 $ (2.9 )During the three months ended March 31, 2022, total research and development
expenses decreased by $2.9 compared to the three months ended March 31, 2021.
The decrease relates to increases in clinical trial expenses and discovery
research activities related to tazemetostat in other indications as well as
EZM0414, our SETD2 inhibitor program, which were offset by decreases in our
discovery and preclinical stage product programs. Additionally, severance and
termination-related costs totaling $0.8 million were recorded in the three
months ended March 31, 2022 related to the March 2022 expense reductions.
The following table illustrates the components of our research and development
expenses:
Three Months Ended
March 31,
Product Program 2022 2021 Change
(In millions)
External research and development expenses:
Tazemetostat and related EZH2 programs $ 12.1 $ 11.7 $ 0.4
SETD2 inhibitor EZM0414 program 1.2 - 1.2
Discovery and preclinical stage product
programs, collectively 1.7 5.9 (4.2 )
Unallocated personnel and other expenses 14.8 15.1 (0.3 )
Total research and development expenses $ 29.8 $ 32.7 $ (2.9 )
External research and development expenses include external manufacturing costs
related to the acquisition of active pharmaceutical ingredient and manufacturing
of clinical drug supply, ongoing clinical trial costs, discovery and preclinical
research in support of the tazemetostat, EZM0414 program, and other pipeline
preclinical programs and expenses associated with our companion diagnostic
program.
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External research and development expenses for tazemetostat and related EZH2
programs increased $0.4 million for the three months ended March 31, 2022
compared to the three months ended March 31, 2021. The increase for the three
months ended March 31, 2022 relates to increases in clinical trial expenses
related to tazemetostat in other indications.
External research and development expenses for EZM0414 increased $1.2 million
for the three months ended March 31, 2022 compared to the three months ended
March 31, 2021. We designated the program as a clinical development program in
the third quarter of 2021. Prior to the designation of the program as a clinical
development program, we allocated costs related to EZM0414 to external research
and development expenses for discovery and preclinical stage product programs.
External research and development expenses for discovery and preclinical stage
product programs decreased by $4.2 million for the three months ended March 31,
2022 compared to the three months ended March 31, 2021. The decrease in the
three months ended March 31, 2022 is primarily related to a decrease in spending
for discovery research activities combined with reduced preclinical costs in
connection with EZM0414 as a result of the designation of EZM0414 as a clinical
development program in the third quarter of 2021.
Unallocated personnel and other expenses are comprised of compensation expenses
for our full-time research and development employees and other general research
and development expenses. Unallocated personnel and other expenses during the
three months ended March 31, 2022 decreased $0.3 million compared to the three
months ended March 31, 2021. The decrease was a result of decreases in
facilities and equipment related expenses and in unallocated personnel costs and
an increase in the allocation of expenses to projects.
We expect that research and development expenses will decrease through 2022, as
we continue to implement our operating expense reductions and re-prioritize our
investment of company resources in important clinical trials and programs,
including our SYMPHONY-1 (EZH-302), CELLO-1 (EZH-1101), ARIA (EZH-1501) and
SET-101 trials.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries and
related benefits, including stock-based compensation, related to our executive,
finance, intellectual property, business development and support functions.
Other selling, general and administrative expenses include allocated
facility-related costs not otherwise included in research and development
expenses, travel expenses and professional fees for auditing, tax and legal
services, including intellectual property and general legal services.
The following is a comparison of selling, general and administrative expenses
for the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021 Change
(In millions)
Selling, general and administrative $ 27.2 $ 36.4 $ (9.2 )
For the three months ended March 31, 2022, our selling, general and
administrative expenses decreased $9.2 million, compared to the three months
ended March 31, 2021. The decrease for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 is due to the cross-functional
expense reductions starting in August of 2021 and the related decrease in
external expenses and personnel related expenses across our selling, general and
administrative departments. The decrease was partially offset by severance and
termination-related costs totaling $1.7 million which were recorded in the three
months ended March 31, 2022 related to the March 2022 cost reduction plan.
We expect that selling, general and administrative expenses will decrease
through 2022, as we implement changes to our commercial strategy and
organization in an effort to accelerate commercial adoption of TAZVERIK in
appropriate patients as well as an operational cost reduction across general and
administrative functions as part of our prioritization of our investment of
company resources in what we believe to be our most important value-driving
clinical trials and programs.
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Other (Expense) Income, Net
The following is a comparison of other (expense) income, net for the three
months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021 Change
(In millions)
Other (expense) income, net
Interest income $ 0.1 $ 0.1 $ -
Interest expense (5.6 ) (5.5 ) (0.1 )
Other expense, net (0.1 ) - (0.1 )
Change in fair value of warrants to purchase 1.4
common stock
- 1.4
Non-cash interest expense related to sale of
future royalties (0.4 ) (0.5 ) 0.1
Other (expense) income, net $ (4.6 ) $ (5.9 ) $ 1.3Other (expense) income, net consists of interest income earned on our cash
equivalents and marketable securities, interest expense related to our long-term
debt obligations, non-cash changes in the fair value of warrant liabilities and
non-cash interest expense related to the sale of future royalties. There was a
$1.3 million decrease in other expense for the three months ended March 31, 2022
compared to the three months ended March 31, 2021, principally due to income
recognized for the $1.4 million decrease in fair value of warrant liability.
This decrease in other expense was partially offset by a $0.1 million increase
in interest expense during the three months ended March 31, 2022 compared to the
three months ended March 31, 2021.
Income Tax Expense
We recorded a federal and state income tax provision for the three months ended
March 31, 2022 of less than $0.1 million due to the expected and known loss
before income taxes to be incurred, or incurred, as applicable, for the year
ended December 31, 2022, as well as our continued maintenance of a full
valuation allowance against our net deferred tax assets, with the exception of
the deferred tax asset related to alternative minimum tax credit. We did not
record a federal or state income tax provision or benefit for the three months
ended March 31, 2021 due to the expected and known loss before income taxes to
be incurred, or incurred, as applicable, for the year ended December 31, 2021,
as well as our continued maintenance of a full valuation allowance against our
net deferred tax assets, with the exception of the deferred tax asset related to
alternative minimum tax credit.
Liquidity and Capital Resources
Through March 31, 2022, in addition to revenues from product sales, we have
raised an aggregate of $1,650.2 million to fund our operations. This includes
$268.8 million of non-equity funding through our collaboration agreements,
including the $25.0 million upfront payment received from HutchMed in September
2021, $368.1 million of funding, consisting of $150.0 million in equity funding
received through agreements with 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), $937.3 million from the sale of common
stock and Series A Preferred Stock in our public offerings and at-the-market
offerings and $76.0 million from the sale of redeemable convertible preferred
stock in private financings prior to our initial public offering in May 2013. As
of March 31, 2022, we had $199.7 million in cash, cash equivalents and
marketable securities.
In January 2022, we raised approximately $79.5 million in net proceeds (after
deducting underwriting discounts and commissions and estimated offering costs,
but excluding any expenses and other costs reimbursed by the underwriters) from
the sale of 56,666,667 shares of our common stock in a public offering at a
price of $1.50 per share.
On May 6, 2021, we entered into the ATM Sale Agreement with Jefferies to sell,
from time to time, shares of our common stock having an aggregate offering price
of up to $200,000,000 through an "at the market offering" as defined in Rule 415
under the Securities Act of 1933, as amended, under which Jefferies would act as
sales agent. The shares that may be sold under the ATM Sale Agreement, if any,
are issued and sold pursuant to our shelf registration statement on Form S-3
that was declared effective by the SEC on May 13, 2021. From the initiation of
the ATM Offering through March 31, 2022, we have issued and sold 5,314,135
shares under the ATM Offering, resulting in aggregate net proceeds of $18.3
million after deducting issuance costs of $0.6 million.
In addition to our existing cash, cash equivalents and marketable securities, we
are eligible to earn milestone payments under our collaboration agreement with
HutchMed. Our ability to earn these payments and the timing of earning these
payments is dependent upon the outcome of our research and development
activities and is uncertain at this time.
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Funding Requirements
Our primary uses of capital are clinical trial costs, third-party research and
development services, expenses related to commercialization, debt service
obligations, compensation and related expenses, laboratory and related supplies,
legal and other regulatory expenses and general overhead costs.
Because the continued approval of TAZVERIK in the approved indications is
contingent upon verification and description of clinical benefit in confirmatory
trials, and because we are developing tazemetostat for other indications, we
cannot estimate the actual amounts necessary to successfully complete the
development and commercialization of TAZVERIK for the approved indications or
the indications that we are exploring or that we may plan to explore. Because
EZM0414 is an early clinical product candidate and any future product candidates
are in various stages of preclinical development with uncertain outcomes, we
also cannot estimate the actual amounts necessary to successfully complete the
development and commercialization of EZM0414 or future product candidates.
Because of these uncertainties, we also cannot estimate whether, or when, we may
achieve profitability. Until such time, if ever, as we can generate substantial
product revenues, we expect to finance our cash needs through a combination of
equity or debt financings and collaboration arrangements. Except for any
obligations of our collaborators to make license, milestone or royalty payments
under our agreements with them, we do not have any committed external sources of
liquidity. To the extent that we raise additional capital through the future
sale of equity or debt, the ownership interest of our stockholders may be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our existing common
stockholders. Debt financing and preferred equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds through
collaboration arrangements in the future, we may have to relinquish valuable
rights to our technologies, future revenue streams or product candidates or
grant licenses on terms that may not be favorable to us. If we are unable to
raise any additional funds that may be needed through equity or debt financings
when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.
Outlook
Based on our current operating plan, we expect that our existing cash, cash
equivalents and marketable securities as of March 31, 2022, will be sufficient
to fund our planned operating expenses and capital expenditure requirements and
pay our debt service obligations as they become due into the third quarter of
2023, without giving effect to any potential milestone payments we may receive
under our collaboration agreements. We have based this estimate on assumptions
that may prove to be wrong, such as the revenue that we expect to generate from
the sale of our products, or as to our clinical development costs, particularly
as the process of testing drug candidates in clinical trials is costly and the
timing of progress in these trials is uncertain. As a result, we could use our
capital resources sooner than we expect.
Cash Flows
The following is a summary of cash flows for the three months ended March 31,
2022 and 2021:
Three Months Ended March 31,
2022 2021 Change
(In millions)
Net cash (used in) operating activities $ (59.2 ) $ (75.6 ) $ 16.4
Net cash provided by investing activities (44.2 ) (20.3 ) (23.9 )
Net cash provided by financing activities 82.5
1.4 81.1
Net Cash Used in Operating Activities
Net cash used in operating activities was $59.2 million during the three months
ended March 31, 2022 compared to $75.6 million during the three months ended
March 31, 2021. The decrease in net cash used in operating activities primarily
relates to our net loss of $55.5 million, changes in working capital of $9.6
million, and the $1.4 million change in fair value of warrants, partially offset
by net depreciation and amortization of $1.6 million, non-cash stock-based
compensation of $5.3 million, and non-cash interest expense associated with the
sale of future royalties of $0.4 million.
Net cash used in operating activities during the three months ended March 31,
2021 primarily relates to our net loss of $70.3 million, changes in working
capital of $14.6 million, partially offset by net depreciation and amortization
of $1.8 million, non-cash stock-based compensation of $7.0 million, and non-cash
interest expense associated with the sale of future royalties of $0.5 million.
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Net Cash Provided by Investing Activities
Net cash used in investing activities during the three months ended March 31,
2022 reflects maturities of available-for-sale securities of $47.8 million,
offset by $92.0 million of purchases of available-for-sale securities, and less
than $0.1 million of purchases of property and equipment.
Net cash provided by investing activities during the three months ended March
31, 2021 reflects maturities of available-for-sale securities of $100.4 million,
offset by $120.6 million of purchases of available-for-sale securities, and $0.1
million of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $82.5 million during the three
months ended March 31, 2022 primarily reflects net proceeds from the sale of
common stock through a public offering and under the ATM Sale Agreement of $82.3
million, and the purchases of shares under our employee stock purchase plan of
$0.4 million, partially offset by the payment of offering costs of $0.2 million
related to the public offering.
Net cash provided by financing activities of $1.4 million during the three
months ended March 31, 2021 reflects cash received from the purchases of shares
under our employee stock purchase plan of $1.3 million and stock option
exercises of $0.2 million.
Critical Accounting Estimates
Our management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires us 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 balance sheets and the reported
amounts of collaboration revenue, inventory and expenses during the reporting
periods. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances at the time
such estimates are made. Actual results and outcomes may differ materially from
our estimates, judgments and assumptions. We periodically review our estimates
in light of changes in circumstances, facts and experience. The effects of
material revisions in estimates are reflected in the consolidated financial
statements prospectively from the date of the change in estimate.
We define our critical accounting policies as those accounting principles
generally accepted in the United States of America that require us to make
subjective estimates and judgments about matters that are uncertain and are
likely to have a material impact on our financial condition and results of
operations as well as the specific manner in which we apply those principles.
Management has determined that our most critical accounting policies are those
relating to revenue recognition, research and development expenses, including
our accounting for clinical trial expense and accruals, inventory and going
concern. As our clinical development plan for tazemetostat and EZM0414
progresses, we expect research and development expenses and, in particular, our
accounting for clinical trial accruals to be an increasingly important critical
accounting policy.
During the three months ended March 31, 2022, there have been no material
changes with respect to our critical accounting estimates disclosed in our
Annual Report on Form 10-K for our fiscal year ended December 31, 2021.
Recently Adopted Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and
the expected impact on our condensed consolidated financial statements, see Note
2, Summary of Significant Accounting Policies-Recently Adopted Accounting
Pronouncements, in the accompanying Notes to Condensed Consolidated Financial
Statements included in Item 1 of this Quarterly Report on Form 10-Q.
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