EPIZYME, INC. 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 inthe 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onMarch 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.
Proposed Acquisition by Ipsen
OnJune 27, 2022 , we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Ipsen Pharma SAS, or the Parent, andHibernia Merger Sub, Inc. , or the Purchaser. Pursuant to the Merger Agreement, onJuly 12, 2022 , Purchaser commenced an Offer to purchase all of the Shares at a price of$1.45 per Share, payable to the holder in cash, without interest, plus one non-transferable CVR per Share, which represents the right to receive one or more payments in cash, of up to$1.00 per CVR, contingent upon the achievement of certain specified milestones. As soon as practicable after the consummation of the Offer and the satisfaction or waiver of certain conditions as set forth in the Merger Agreement, Purchaser will be merged with and into the Company, without a meeting of the Company stockholders in accordance with Section 251(h) of the General Corporation Law of theState of Delaware , and the Company will be the surviving corporation and a wholly owned indirect subsidiary of Parent, the Merger. As a result of the Merger, we will cease to be a publicly traded company. The Merger Agreement contains customary representations, warranties, and covenants. We currently expect the Offer and the Merger to be completed in the third quarter of 2022, subject to the satisfaction or waiver of customary closing conditions, including, among others, that the number of Shares tendered in the Offer represent at least one Share more than 50% of the total number of Shares outstanding immediately prior to the expiration of the Offer. The Merger Agreement provides Parent and the Company with certain termination rights and, under certain circumstances, may require us to pay Parent a termination fee of$9.9 million .
For additional information related to the Merger Agreement, refer to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
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 theJune 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 in some areas ofthe United States , including at certain academic institutions and in some portions of the Northeast and West, 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 33 -------------------------------------------------------------------------------- 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. InOctober 2021 we opened our facilities to all employees who expressed interest in participating in a return-to-office pilot program, and starting inApril 2022 we encouraged allCambridge -based employees to return to the office in a hybrid virtual/in-office 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 informed by 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 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 inChina , 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 endedDecember 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 inAugust 2021 , inMarch 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 decided to discontinue 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). 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 theMarch 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.
Overview
We are a commercial-stage biopharmaceutical company 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
34
--------------------------------------------------------------------------------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 inJanuary 2020 for ES and inJune 2020 for FL. A significant focus for us 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. InJanuary 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 inthe 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 inthe 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 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 theAmerican Society of Clinical Oncology , or ASCO, Annual Meeting inJune 2021 . InJune 2020 , the FDA approved a supplemental New Drug Application, or sNDA, for TAZVERIK for adult patients with relapsed or refractory, or 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 inthe 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 seek to leverage the confirmatory trial and also conduct post-marketing commitments to expand the TAZVERIK label into the second-line treatment setting. InDecember 2021 we presented updated safety and activity data from the Phase 1b safety run-in portion of the SYMPHONY-1 confirmatory trial at the 2021American Society of Hematology , or ASH, Annual Meeting. InJune 2022 , we presented updated safety and activity data from the Phase 1b at the ASCO Annual Meeting inChicago . We continue to follow the 40 patients in the Phase 1b safety run-in portion of the trial, and we anticipate providing longer term follow-up data from the Phase 1b portion of the trial at a medical conference 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, inDecember 2021 we submitted a protocol amendment to the FDA with 800 mg twice-daily as the recommended tazemetostat dose, or 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. InMarch 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. InJuly 2021 China's Center for Drug Evaluation , or CDE, approved the Investigational New Drug Application, or IND, we filed inChina for SYMPHONY-1. 35
-------------------------------------------------------------------------------- Through our planned development efforts, our intention is to eventually make TAZVERIK available in all lines of treatment for patients with FL. In collaboration withThe 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 complete. In collaboration with LYSA, we expect that top-line results from the Phase 2 portion of this trial will be shared 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;
•
PARPi-resistant tumors, such as castration-resistant prostate cancer, small cell lung cancer, and others; and
•
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, has completed enrollment with a total of 80 patients. We expect to present updated data from the safety run-in portion of the trial later in 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
We own the global development and commercialization rights to tazemetostat
outside of
TAZVERIK is available to eligible patients inthe 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 inthe United States , we have built a focused field presence and marketing capabilities. OnAugust 7, 2021 , we entered into a strategic collaboration pursuant to a license agreement with HutchMed, or the HutchMed License Agreement, 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 mainlandChina ,Taiwan ,Hong Kong andMacau , or the HutchMed Territory. OnMay 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. 36 --------------------------------------------------------------------------------
For other geographies outside
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 inJuly 2021 . We received "study may proceed" from the FDA with respect to our IND for EZM0414 inJuly 2021 . InOctober 2021 , EZM0414 was granted Fast Track designation by the FDA in adult patients with relapsed or refractory DLBCL and inJanuary 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. InJune 2022 , dosing of the first patient in the Phase 1 portion of the SET-101 trial was completed. 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. ThroughJune 30, 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, and$218.1 million in debt financing received through a loan agreement withBioPharma Credit Investments V (Master) LP andBPCR Limited Partnership (as transferee ofBioPharma 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 inMay 2013 . As ofJune 30, 2022 , we had$144.4 million in cash, cash equivalents and marketable securities. InJanuary 2022 , we 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$92.3 million for the six months endedJune 30, 2022 . As ofJune 30, 2022 , our accumulated deficit totaled$1,331.1 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 withBioPharma 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
We executed the RPI Purchase Agreement onNovember 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 inJapan , or the Japan Royalty, pursuant to the amended and restated collaboration and license agreement between us and Eisai, dated as ofMarch 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 inNovember 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 37 -------------------------------------------------------------------------------- period beginningNovember 4, 2019 , or the Put Option. OnFebruary 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. OnNovember 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. OnNovember 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. OnNovember 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 collateral. The Company has agreed to terminate all commitments under the Amended and Restated Loan Agreement and repay the loans in connection with the closing of the Merger. 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 and six months
ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(In millions) (In millions)
Product revenues, net $ 11.0 $ 8.0 $ 3.0 $ 19.7 $ 14.2 $ 5.5
Collaboration and other revenue 16.5 5.0 11.5 16.5 6.5 10.0
Total revenues $ 27.5 $ 13.0 $ 14.5 $ 36.2 $ 20.7 $ 15.5
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 discounts. During the three months ended June 30, 2022 and 2021,
net product revenues were $11.0 million and $8.0 million , respectively. The $3.0
million increase reflects the increase in TAZVERIK product sales. During the six
months ended June 30, 2022 and 2021, net product revenues were $19.7 million and
$14.2 million , respectively. The $5.5 million increase reflects an increase in
TAZVERIK product sales. Sales allowances and discounts consisted of patient
financial assistance, distribution fees, discounts, and chargebacks. Net product
revenues in the three months ended June 30, 2022 and 2021 included $2.1 million
and $3.2 million , respectively, of sale of commercial product by one of our
customers to a third-party pharmaceutical company for use in its clinical
trials.
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 and six months endedJune 30, 2022 , we recognized$16.5 and$16.5 million , respectively, in collaboration and other revenue. This collaboration revenue was recognized as part of the HutchMed License Agreement for the supply of tazemetostat drug substance, the manufacture and supply of tazemetostat and development services. Prior to theMay 6, 2022 , amendment to the HutchMed License Agreement, the agreement provided that if the EZH-302 global trial not been deemed a confirmatory trial for 38 -------------------------------------------------------------------------------- purposes of regulatory approval inChina , we would have been responsible for reimbursing HutchMed for the costs of the portion of the EZH-302 global trial that would be performed inChina . We had previously concluded that this potential repayment provision represented variable consideration under the arrangement. Due to the uncertainty of potential repayment, which was based solely on the decision of a regulatory authority, we could not assert that it was probable that a significant reversal of revenue would not occur. As a result, we determined that the transaction price should be fully constrained. Pursuant to theMay 6, 2022 , amendment to the HutchMed License Agreement, this potential repayment provision was removed and we concluded that the full upfront fee and reimbursement of research and development services should be included in the transaction price and recognized as revenue. The collaboration and other revenue in the three and six months endedJune 30, 2022 includes less than$0.1 million of non-cash royalties from net sales of tazemetostat inJapan . The collaboration and other revenue of$5.0 million and$6.5 million in the three and six months endedJune 30, 2021 , respectively, was recognized as part of our supply agreement with Eisai for the waiver of its exclusive right to its manufacturer for the supply of tazemetostat drug substance, 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 and six months
ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(In millions) (In millions)
Cost of product revenue $ 2.9 $ 2.5 $ 0.4 $ 5.5 $ 4.5 $ 1.0
Cost of other revenue 2.3 - 2.3 2.3 0.8 1.5
Total cost of revenue $ 5.2 $ 2.5 $ 2.7 $ 7.8 $ 5.3 $ 2.5
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. Cost of product revenue includes materials, labor,
manufacturing overhead, amortization of milestone payments, and royalties
payable on net sales of TAZVERIK, while cost of other revenue includes
materials, labor and manufacturing overhead. During the three months ended June
30, 2022 and 2021, the cost of product revenue was $2.9 million and $2.5
million , respectively, and consisted of $0.5 million and $0.3 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 for ES and upon regulatory approval of TAZVERIK
for FL, and $1.3 million and $1.2 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 June 30, 2022 consisted of $2.3 million of
costs related to the sale of tazemetostat drug substance to HutchMed. We did not
have cost of other revenues in the three months ended June 30, 2021 .
During the six months ended June 30, 2022 and 2021, cost of product revenue was
$5.5 million and $4.5 million , respectively, and consisted of $0.8 million and
$0.3 million , respectively, in costs associated with manufacturing TAZVERIK,
$2.1 million and $2.1 million , respectively, in amortization expense related to
the two $25.0 million milestone payments we paid under the Eisai License
Agreement upon regulatory approval of TAZVERIK for ES and upon regulatory
approval of TAZVERIK for FL, and $2.6 million and $2.1 million , respectively, in
worldwide royalties due under the Eisai License Agreement on net sales of
TAZVERIK. Cost of other revenue during the six months ended June 30, 2022
consisted of $2.3 million of costs related to the sale of tazemetostat drug
substance to HutchMed. Cost of other revenue during the six months ended June
30, 2021 consisted of $0.8 million of costs related to the sales of tazemetostat
drug product to Eisai.
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
and six months ended
39
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Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(In millions) (In millions)
Research and development $ 28.1 $ 34.9 $ (6.8 ) $ 57.8 $ 67.6 $ (9.8 )
During the three and six months ended June 30, 2022 , total research and
development expenses decreased by $6.8 million and $9.8 million , respectively,
compared to the three and six months ended June 30, 2021 . The decrease related
to decreases in our clinical trial expenses and discovery research activities
related to tazemetostat in other indications as well as discovery and
preclinical stage product programs, which were offset by increases in clinical
trial expenses and discovery research activities related to EZM0414, our SETD2
inhibitor program. Additionally, severance and termination-related costs
totaling $0.8 million were recorded in the first quarter of 2022 and included in
the six months ended June 30, 2022 related to the March 2022 operating expense
reductions. There were no such severance and termination related costs incurred
during the three months ended June 30, 2022 .
The following table illustrates the components of our research and development
expenses:
Three Months Ended Six Months Ended
June 30, June 30,
Product Program 2022 2021 Change 2022 2021 Change
(In millions) (In millions)
External research and
development expenses:
Tazemetostat and related EZH2
programs $ 11.7 $ 15.3 $ (3.6 ) $
23.8
SETD2 inhibitor EZM0414 program 1.3 - 1.3 2.5 - 2.5 Discovery and preclinical stage product programs, collectively 1.4 5.9 (4.5 ) 3.1 11.7 (8.6 ) Unallocated personnel and other expenses 13.7 13.7 0.0 28.4 28.9 (0.5 ) Total research and development expenses$ 28.1 $ 34.9 $ (6.8 ) $ 57.8 $ 67.6 $ (9.8 ) 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. 40 -------------------------------------------------------------------------------- External research and development expenses for tazemetostat and related EZH2 programs decreased$3.6 million and$3.2 million , respectively, for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 . The decrease for the three and six months endedJune 30, 2022 relates to decreases in clinical trial expenses related to tazemetostat in other indications. External research and development expenses for EZM0414 increased$1.3 million and$2.5 million , respectively, for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 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$4.5 million and$8.6 million , respectively, for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 . The decrease 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 and six months endedJune 30, 2022 decreased$0.1 million and$0.5 million , respectively, compared to the three and six months endedJune 30, 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 and six months ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(In millions)
(In millions)
Selling, general and administrative
For the three and six months endedJune 30, 2022 , our selling, general and administrative expenses decreased$9.8 million and$19.0 million , respectively, compared to the three and six months endedJune 30, 2021 . The decrease for the three and six months endedJune 30, 2022 compared to the three months endedJune 30, 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 first quarter of 2022 and included in the six months endedJune 30, 2022 , related to theMarch 2022 cost reduction plan. There were no such severance and termination related costs incurred during the three months endedJune 30, 2022 .
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.
Other (Expense) Income, Net
The following is a comparison of other (expense) income, net for the three and
six months ended
41
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Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(In millions) (In millions)
Other (expense) income, net
Interest income $ 0.2 $ - $ 0.2 $ 0.3 $ 0.1 $ 0.2
Interest expense (5.6 ) (5.6 ) 0.0 (11.2 ) (11.1 ) (0.1 )
Other expense, net (0.1 ) - (0.1 ) (0.2 ) (0.1 ) (0.1 )
Change in fair value of -
warrants to purchase common
stock - - 0.0 1.4 - 1.4
Non-cash interest expense
related to sale of future
royalties (0.4 ) (0.5 ) 0.1
(0.8 ) (1.0 ) 0.2
Other (expense) income, net
Other (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$0.2 million decrease in other expense for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , principally due to interest income of$0.2 million earned on cash equivalents and marketable securities. The decrease in other expense for the six months endedJune 30, 2022 is principally due to income recognized for the$1.4 million decrease in fair value of warrant liability. Income Tax Expense We recorded a federal and state income tax provision for the three and six months endedJune 30, 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 endedDecember 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 or six months endedJune 30, 2021 due to the expected and known loss before income taxes to be incurred, or incurred, as applicable, for the year endedDecember 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
ThroughJune 30, 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 inSeptember 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 withBioPharma Credit Investments V (Master) LP andBPCR Limited Partnership (as transferee ofBioPharma 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 inMay 2013 . As ofJune 30, 2022 , we had$144.4 million in cash, cash equivalents and marketable securities. InJanuary 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. OnMay 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 theSEC onMay 13, 2021 . From the initiation of the ATM Offering throughJune 30, 2022 , we have issued and sold 5,314,135 shares under the ATM Sale Agreement, resulting in aggregate net proceeds of$18.3 million after deducting issuance costs of$0.6 million . There were no shares issued or sold under the ATM Sale Agreement during the three months endedJune 30, 2022 . 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. 42 -------------------------------------------------------------------------------- OnJuly 12, 2022 , we received a letter of determination of compliance from theNasdaq Listing Qualifications Department staff notifying us that the staff had determined that for 10 consecutive business days, fromJune 27, 2022 toJuly 11, 2022 , the closing bid price of our common stock had been at$1.00 per share or greater. Accordingly, theNasdaq Listing Qualification Department staff notified us that we have regained compliance with Listing Rule 5450(a)(1) and the matter is now closed. As ofJune 30, 2022 , we had cash and cash equivalents of$71.1 million . We believe that our existing cash and cash equivalents will not enable us to fund our operating expenses and capital expenditure requirements for 12 months from the date the financial statements are issued. After considering various risks and uncertainties as prescribed by Accounting Standards Update No. 2014-15, Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40), we concluded that there is substantial doubt about our ability to continue as a going concern as of the date of issuance of the financial statements without additional capital.
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 ofJune 30, 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. However, we do not believe this is sufficient to conclude that we have sufficient funding to continue as a going concern through at least 12 months past the filing date of this Form 10-Q with theSEC and have consequently concluded there is substantial doubt to our ability to continue as a going concern. 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 six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 Change (In millions) Net cash (used in) operating activities$ (114.0 ) $ (132.2 ) $ 18.2 Net cash provided by investing activities 4.5 40.7 (36.2 ) Net cash provided by financing activities 82.2 3.5 78.7 43
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Net cash used in operating activities was$114.0 million during the six months endedJune 30, 2022 compared to$132.2 million during the six months endedJune 30, 2021 . The decrease in net cash used in operating activities primarily relates to our net loss of$91.2 million , changes in working capital of$35.1 million , and the$1.4 million change in fair value of warrants, partially offset by net depreciation and amortization of$3.3 million , non-cash stock-based compensation of$9.7 million , and non-cash interest expense associated with the sale of future royalties of$0.7 million . Net cash used in operating activities during the six months endedJune 30, 2021 primarily relates to our net loss of$134.6 million , changes in working capital of$16.0 million , partially offset by net depreciation and amortization of$3.6 million , non-cash stock-based compensation of$13.7 million , and non-cash interest expense associated with the sale of future royalties of$0.9 million .
Net Cash Provided by Investing Activities
Net cash used in investing activities during the six months endedJune 30, 2022 reflects maturities of available-for-sale securities of$102.0 million , offset by$97.4 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 six months endedJune 30, 2021 reflects maturities of available-for-sale securities of$211.5 million , offset by$170.7 million of purchases of available-for-sale securities, and$0.2 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 six months endedJune 30, 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$0.4 million related to the public offering. Net cash provided by financing activities of$3.5 million during the six months endedJune 30, 2021 reflects net proceeds from the sale of common stock under the ATM Sale Agreement of$1.5 million , the purchases of shares under our employee stock purchase plan of$1.2 million and stock option exercises of$0.9 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 inthe 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 inthe 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 six months endedJune 30, 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 endedDecember 31, 2021 .
Recently Adopted Accounting Pronouncements
44
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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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