Epizyme, Inc. EPZM is scheduled to report its second-quarter 2015 results on Aug 6.
The company has a mixed track record. It beat estimates in two of the last four trailing quarters with a negative average earnings surprise of 13.16%. We expect the company to beat expectations in the second quarter as well.
Factors Influencing this Quarter
Being a development-stage company, Epizyme does not have any approved product in its portfolio yet. The company’s top line comprises collaboration revenues only. Hence, investor focus should remain on pipeline updates.
The lead candidate at Epizyme, tazemetostat (EPZ-6438) is being evaluated in a phase I/II study for relapsed or refractory B-cell lymphoma or advanced solid tumors. On its last quarter call, the company said that it had initiated the food-effect study and revealed its intention to conduct a drug-drug interaction study after completing enrollment in the food-effect study. We expect an update from the company regarding its progress on the food-effect study.
Meanwhile, investor focus will remain on the progress of the five-arm phase II study on tazemetostat for relapsed or refractory non-Hodgkin lymphoma, which was commenced in Jul 2015. Additionally, the company has plans to evaluate tazemetostat for INI1-deficient solid tumor in pediatrics and adults in a phase I and phase II study, respectively. Both studies are slated for initiation later in 2015. We expect Epizyme to shed light on the upcoming studies on its second-quarter call.
By the end of first-quarter 2015, Epizyme had substantially completed its research obligations under its agreement with GlaxoSmithKline GSK. The transfer of remaining data and materials for these programs to Glaxo was expected to be completed in the second quarter of 2015.
Epizyme expects research and development expenditure to increase significantly in 2015 due to the global development of tazemetostat (outside Japan). We remind investors that Epizyme reacquired global rights to EPZ-6438 from Eisai Co. Ltd. ESALY in Mar 2015.
What Our Model Indicates
Our proven model shows that Epizyme is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to increase the odds of an earnings surprise. This is the case as elaborated below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 3.08%, since the Most Accurate estimate is a loss of 63 cents, while the Zacks Consensus Estimate stands at a loss of 65 cents.
Zacks Rank: Epizyme carries a Zacks Rank #2, which when combined with a positive ESP, makes us fairly confident on the company beating estimates this season.
However, we caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.
Another Stock That Warrants a Look
Here is another company you may want to consider as our model shows that it also has the right combination of elements to post an earnings beat this quarter:
Inovio Pharmaceuticals, Inc. INO has an Earnings ESP of +275.00% and carries a Zacks Rank #3. The company is slated to release second-quarter results on Aug 10.
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