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Here's Why Epizyme Is Down on Good News Today

What happened

Shares of Epizyme (NASDAQ: EPZM) are down 14.7% at 1:59 p.m. EST after the biotech gained Food and Drug Administration approval for Tazverik in patients with epithelioid sarcoma.

You read that right, the FDA approved the drug and investors now think the company is worth less than it was yesterday.

So what

This appears to be a simple case of selling the news because the approval was already priced in. Last month, an FDA advisory committee voted 11-0 in favor of the benefit-risk profile for Tazverik. While the agency doesn't have to follow the advice of its outside experts, the unanimous support made it pretty likely that an approval was coming.

While the biotech is down today, shares are still -- even with today's fall -- about double where they were three months ago.

Image source: Getty Images.

Now what

Epithelioid sarcoma is a fairly small market -- it makes up less than 1% of all soft-tissue sarcomas -- but Tazverik is also up for FDA review as a treatment for follicular lymphoma, which is substantially more common. Initially the drug would be approved for patients who had failed two previous therapies, but Epizyme is testing the drug in earlier-stage patients in combination with currently approved drugs, which could further expand the market for the drug.

Between epithelioid sarcoma and follicular lymphoma, Tazverik has the potential to reach $1 billion in sales, especially if Epizyme can get Tazverik approved as a first-line treatment. Assuming a market cap of five times peak sales, there's plenty of room for Epizyme's valuation to increase from the current $2.2 billion market cap if the additional approvals come to fruition.

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Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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