Epizyme Inc Annual Report 2016

Plain-text annual report

EPIZYME, INC. FORM 10-K (Annual Report) Filed 03/13/17 for the Period Ending 12/31/16 Address Telephone CIK Symbol SIC Code Industry 400 TECHNOLOGY SQUARE 4TH FLOOR CAMBRIDGE, MA 02139 617-229-5872 0001571498 EPZM 2834 - Pharmaceutical Preparations Biotechnology & Medical Research Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-35945EPIZYME, INC.(Exact name of registrant as specified in its charter) Delaware 26-1349956(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)400 Technology Square, Cambridge, Massachusetts 02139(Address of principal executive offices) (Zip code)617-229-5872(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.0001 par value NASDAQ Global Market(Title of each class) (Name of exchange on which registered)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐ Yes ☒ NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). ☒ Yes ☐ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of“accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ NoThe aggregate market value of the registrant’s common stock, par value $0.0001 per share, held by non-affiliates of the registrant on June 30, 2016, the last business day of theregistrant’s most recently completed second fiscal quarter, was approximately $449.4 million based on the closing price of the registrant’s common stock on the NASDAQGlobal Market on that date.The number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, as of March 1, 2017 was 58,248,726.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement that the registrant intends to file with the Securities and Exchange Commission pursuant to Regulation 14A in connectionwith the registrant’s 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.Table of ContentsEpizyme, Inc.Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016Table of Contents Page Item No. PART I Item 1. Business 3 Item 1A. Risk Factors 43 Item 1B. Unresolved Staff Comments 74 Item 2. Properties 74 Item 3. Legal Proceedings 74 Item 4. Mine Safety Disclosures 74 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 75 Item 6. Selected Financial Data 77 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 78 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 92 Item 8. Financial Statements and Supplementary Data 92 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 92 Item 9A. Controls and Procedures 92 Item 9B. Other Information 93 PART III Item 10. Directors, Executive Officers and Corporate Governance 94 Item 11. Executive Compensation 94 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 94 Item 13. Certain Relationships and Related Transactions, and Director Independence 94 Item 14. Principal Accounting Fees and Services 94 PART IV Item 15. Exhibits, Financial Statement Schedules 95 Item 16. Form 10-K Summary 95 Signatures 96 Epizyme ® is a registered trademark of Epizyme in the United States and/or other countries. All other trademarks, service marks or other tradenames appearing inthis Annual Report on Form 10-K are the property of their respective owners.Table of ContentsForward-looking InformationThis Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. These statements may be identified by suchforward-looking terminology as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,”“could,” “should,” “continue,” and similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations,assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. Wemay not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from theplans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known andunknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding: • our plans to develop and commercialize novel epigenetic therapies for patients with cancer and other diseases; • our ongoing and planned clinical trials, including the timing of initiation and enrollment in the trials, the timing of availability of data from the trialsand the anticipated results of the trials; • our ability to achieve anticipated milestones under our collaborations; • the timing of and our ability to apply for, obtain and maintain regulatory approvals for our product candidates; • the rate and degree of market acceptance and clinical utility of our products; • our commercialization, marketing and manufacturing capabilities and strategy; • our intellectual property position; and • our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.All of our forward-looking statements are made as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially fromsuch forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of orany material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or included in our otherpublic disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, couldmaterially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan toupdate or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstancesaffecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make itclear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Annual Report on Form 10-K whichmodify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K will be deemed to modify or supersede such statements inthis Annual Report on Form 10-K. 2Table of ContentsPART I Item1. BusinessOverviewEpizyme is a clinical stage biopharmaceutical company that discovers, develops and plans to commercialize novel epigenetic therapies for patients with cancer andother diseases. We are leaders in discovering and developing small molecule inhibitors of a class of enzymes known as histone methyltransferases, or HMTs, aswell as other chromatin modifying proteins, or CMPs. CMPs mediate selective and reversible modifications to chromatin, a complex of chromosomal DNA andhistone proteins that controls gene expression. This chromatin remodeling and its resultant control of gene expression are part of a larger regulatory system,commonly referred to as epigenetics. Genetic alterations within CMPs or that indirectly affect CMPs can result in changes to their activity and drive multiple typesof cancer, including hematological cancers and solid tumors, as well as other diseases. We believe that inhibiting altered CMPs presents the opportunity to create,develop and commercialize multiple targeted therapeutics.Our lead product candidate, tazemetostat, is an oral, first-in-class potent and selective inhibitor of the EZH2 HMT, an enzyme that is implicated in a wide range ofcancers. In our clinical trials of tazemetostat in patients with relapsed or refractory non-Hodgkin lymphoma, or NHL, and in patients with certain molecularlydefined solid tumors, tazemetostat showed meaningful clinical activity as a monotherapy, and was generally well tolerated. We are conducting a broad clinicaldevelopment program for tazemetostat as both a monotherapy and combination treatment, in relapsed/refractory and front-line disease, across a number of subtypesof NHL and in patients with and without EZH2 activating mutations. We are also testing tazemetostat in several different types of molecularly defined solidtumors, including INI1- and SMARCA4-negative tumors, which we collectively refer to as INI1-negative tumors, in adults and children and in adults withmesothelioma characterized by BAP1 loss-of-function.In the second quarter of 2017, we expect to present data from all arms of our five-arm Phase 2 clinical trial of tazemetostat as a monotherapy in molecularly definedsolid tumors that have reached the pre-specified futility analysis, including the epithelioid sarcoma and synovial sarcoma arms, and from all five arms of our Phase2 clinical trial of tazemetostat as a monotherapy in NHL. We also plan to meet with regulators, starting with the U.S. Food and Drug Administration, or FDA, bymid-2017, to discuss our solid tumor data, and in the second half of 2017 to discuss our NHL data, to seek to define the paths to registration for tazemetostat as amonotherapy for such indications.We are actively studying tazemetostat in combination with other anti-cancer agents as part of our broad development plan for tazemetostat. We have entered intocollaborations to evaluate tazemetostat in combination with other therapies approved for, or being investigated for, the treatment of diffuse large B-cell lymphoma,or DLBCL, an aggressive form of NHL. We have initiated an immuno-oncology Phase 1b study in collaboration with Genentech, a member of the Roche Group, toinvestigate the combination of tazemetostat and Genentech’s approved anti-PD-L1 cancer immunotherapy, Tecentriq (atezolizumab). The study is evaluating thiscombination regimen for the treatment of patients with relapsed or refractory DLBCL. We have initiated a Phase 1b/2 clinical trial in collaboration with theLymphoma Study Association, or LYSA, a premier cooperative French lymphoma group, to evaluate tazemetostat in combination with R-CHOP in a front linesetting in newly diagnosed, elderly, high-risk patients with DLBCL. R-CHOP is the standard of care front-line combination treatment for patients with DLBCL. InMarch 2017, we opened an additional arm of our ongoing Phase 2 NHL study to investigate tazemetostat in combination with prednisolone for patients withrelapsed or refractory DLBCL and to begin a combination study of tazemetostat in follicular lymphoma, or FL.We own the global development and commercialization rights to tazemetostat outside of Japan. Eisai Co. Ltd, or Eisai, holds the rights to develop andcommercialize tazemetostat in Japan, and holds a limited right of first negotiation for the rest of Asia. Tazemetostat is protected by U.S. composition of matterpatents, which are expected to expire in 2032. Tazemetostat has been granted Fast Track designation by the FDA in patients with 3Table of ContentsDLBCL with EZH2 activating mutations and orphan drug designation by the FDA for the treatment of malignant rhabdoid tumors, or MRT. The orphan drugdesignation applies to INI1-negative MRT as well as SMARCA4-negative malignant rhabdoid tumor of ovary, or MRTO.We have collaboration agreements with Celgene Corporation and Celgene RIVOT Ltd., an affiliate of Celgene Corporation, which we collectively refer to asCelgene, Glaxo Group Limited (an affiliate of GlaxoSmithKline), or GSK, and Eisai. We have also partnered with Roche Molecular Systems, Inc., or RocheMolecular, to develop a companion diagnostic, for use with tazemetostat to identify NHL patients with EZH2 activating mutations. These collaborations provide uswith access to considerable scientific, development, regulatory and commercial capabilities. As of December 31, 2016, we had received $207.8 million in non-equity funding under these collaborations.Since our inception, we have pioneered the discovery and development of novel epigenetic medicines. We have discovered and developed three first-in-classexperimental medicines that are in clinical trials, including tazemetostat. In addition to tazemetostat, we plan to evaluate pinometostat, an inhibitor of the DOT1LHMT that is the subject of our collaboration with Celgene, under a cooperative research and development agreement, or CRADA, with the Cancer TherapyEvaluation Program, or CTEP, of the National Cancer Institute, or NCI, as a combination therapy for patients with acute leukemias. Under our collaboration withGSK, GSK is evaluating GSK3326595, a protein arginine methyltransferase 5, or PRMT5, inhibitor invented by us and licensed to GSK under the collaboration, ina Phase 1 clinical trial in patients with solid tumors and NHL. We have additional small molecule HMT inhibitors that are being developed under ourcollaborations with Celgene and GSK. We have also identified multiple novel epigenetic targets for which we are developing small molecule inhibitors inpreclinical drug discovery. We own the global development and commercialization rights to these programs. All of our novel targets have been identified internallyusing our proprietary drug discovery platform, and all of our small molecule inhibitors have been discovered internally.Corporate StrategyOur goal is to become a fully integrated development and commercial biopharmaceutical company developing novel epigenetic therapies for patients with cancerand other diseases. We have a robust proprietary drug discovery platform and the demonstrated ability to move candidates into clinical development. We plan tobuild out the infrastructure necessary to support the successful launch and marketing of tazemetostat or any other product candidate that receives marketingapproval. The key elements of our strategy to achieve this goal are to: • Rapidly Advance the Clinical Development of Tazemetostat . We are executing a broad clinical development program of tazemetostat formolecularly defined solid tumors, NHL and mesothelioma. We plan on presenting data from our Phase 2 trials in certain molecularly defined solidtumors and NHL in the second quarter of 2017 and interacting with regulatory agencies, beginning with the FDA, by mid-2017 with the goal ofdefining our registration pathways. Due to a lack of treatment options and the severity of disease associated with INI1-negative tumors, we believe thatthis molecularly defined patient population may represent the fastest potential path to new drug application, or NDA, submission and commerciallaunch for tazemetostat. • Seek to Expand the Range of Potential Indications for Tazemetostat . We are conducting a broad development program for tazemetostat as amonotherapy and in combination with other therapies. These efforts include our two ongoing combination trials in DLBCL evaluating tazemetostatwith Tecentriq and tazemetostat with R-CHOP, as well as our combination arm with prednisolone in DLBCL and our planned combination study inFL. We also have over two dozen academic collaborations which are investigating the role of tazemetostat in other cancer types in preclinical models.If we see strong preclinical evidence of sensitivity of specific tumors to EZH2 inhibition, and if a medical need exists, we will consider initiating proofof concept human clinical trials. 4Table of Contents • Establish Commercialization and Marketing Capabilities in the United States . We have retained commercialization rights in the United States forall of our programs, other than the three programs that are the subject of our GSK collaboration and two of the programs that are the subject of ourcollaboration with Celgene. We plan to retain commercialization rights in the United States and possibly selected foreign jurisdictions in connectionwith any future collaborations. We intend to build a focused field presence and marketing capabilities to commercialize any of our product candidatesthat receive regulatory approval in the United States, as well as the capability of leading global commercial strategy. • Use Our Drug Discovery Platform to Build a Pipeline of Proprietary CMP Inhibitors . Using our proprietary drug discovery platform, we aredeveloping additional novel, small molecule inhibitors of CMPs. We currently hold U.S. development and commercialization rights to one of our threepreclinical programs subject to Celgene’s option under our collaboration. In addition, we have identified multiple novel CMP targets against which weare developing small molecule inhibitors in preclinical drug discovery, for which we own global development and commercialization rights. Weexpect to declare our next development candidate in 2017 with the goal of commencing clinical trials of three new product candidates by 2020. • Leverage Collaborations . Our strategic collaborations with Celgene, GSK, Eisai, Genentech, LYSA, Roche Molecular Systems, Inc., or RocheMolecular, NCI and numerous external academic researchers provide us with access to the scientific, development, regulatory and commercialcapabilities of our collaborators. We believe that collaborations like these can contribute to our ability to rapidly advance our product candidates, buildour product platform and concurrently progress a wide range of discovery and development programs. We may seek to enter into additional strategiccollaborations in the future. • Develop Companion Diagnostics for Use with Our Therapeutic Product Candidates . We plan to seek to develop companion diagnostics for usein connection with our therapeutic product candidates where appropriate. We believe that this approach may enable us to accelerate the clinicaldevelopment and regulatory timelines for our therapeutic product candidates and, for any of our therapeutic product candidates that receive marketingapproval, improve patient care by identifying patients who are more likely to benefit from the therapy. We intend to develop diagnostics based oncurrently available diagnostic technologies to the extent possible in order to minimize development and regulatory risk of our diagnostic programs. Weare working with Roche Molecular to develop a companion diagnostic, based on currently available technology, for use with tazemetostat to identifyNHL patients with EZH2 activating mutations. We also plan to develop a companion diagnostic to identify patients with BAP1 loss-of-function for ourmesothelioma program. 5Table of ContentsOur Epigenetic PipelineOverview. The following table summarizes our current pipeline: 1Eisai holds rights to tazemetostat in Japan2Additional arm of existing five-arm NHL Phase 2 Study3 Study not yet initiated4 Celgene holds ex-US rights to pinometostat5 GSK holds global development and commercialization rights6 Celgene holds option to license ex-US rights for one target and global rights for the other two targetsBackgroundCancer is a heterogeneous group of diseases characterized by uncontrolled cell division and growth. Cancerous cells that arise in the lymphatic system and bonemarrow are referred to as hematological tumors. Cancer cells that arise in other tissues or organs are referred to as solid tumors. Researchers believe that exposureto some chemicals, viruses and various forms of radiation can cause genetic alterations that cause cancer. Genetic predispositions also can increase the risk ofcancer in some people.Cancer is the second leading cause of death in the United States, exceeded only by heart disease. The American Cancer Society estimated that in 2017 there will beapproximately 1.7 million new cases of cancer and approximately 600,000 deaths from cancer in the United States.The most common methods of treating patients with cancer are surgery, radiation and drug therapy. A cancer patient often receives treatment with a combination ofthese methods. Surgery and radiation therapy are particularly effective in patients in whom the disease is localized. Physicians generally use systemic drugtherapies in situations in which the cancer has spread beyond the primary site or cannot otherwise be treated through surgery. The goal of drug therapy is to damageand kill cancer cells or to interfere with the molecular and cellular processes that control the development, growth and survival of cancer cells. In many cases, drugtherapy entails the administration of several different drugs in combination. Over the past several decades, drug therapy has evolved from non-specific drugs thatkill both healthy and cancerous cells, to drugs that target specific molecular pathways involved in cancer and more recently to therapeutics that target the specificoncogenic “drivers” of cancer. 6Table of ContentsCytotoxic Chemotherapies. The earliest approach to pharmacological cancer treatment was to develop drugs, referred to as cytotoxic drugs, that kill rapidlyproliferating cancer cells through non-specific mechanisms, such as disrupting cell metabolism or causing damage to cellular components required for survival andrapid growth. While these drugs have been effective in the treatment of some cancers, many unmet medical needs for the treatment of cancer remain. Also,cytotoxic drug therapies act in an indiscriminate manner, killing healthy as well as cancerous cells. Due to their mechanism of action, many cytotoxic drugs have anarrow dose range above which the toxicity causes unacceptable or even fatal levels of damage and below which the drugs are not effective in eradicating cancercells.Targeted Therapies. Another approach to pharmacological cancer treatment was to develop drugs, referred to as targeted therapeutics, that target specific biologicalmolecules in the human body that play a role in rapid cell growth and the spread of cancer. Targeted therapeutics include vascular disruptors, also referred to asangiogenesis inhibitors, that prevent the formation of new blood vessels and restrict a tumor’s blood supply. Marketed vascular disruptors include Avastin andZaltrap. Other targeted therapies, such as Herceptin and Tarceva, affect cellular signaling pathways that are critical for the growth of cancer. These drugs focus onprocesses that help the cancer cell survive, but not the oncogenes that are the drivers or cause of the cancer itself.Anti-Oncogenic Therapies. A more recent approach to pharmacological cancer treatment is to develop drugs that affect the drivers that cause uncontrolled growthof cancer cells because of a specific genetic alteration. In some cases, these agents were identified as therapeutics without knowledge of the underlying geneticchange causing the disease. To date, the shortcoming of this approach has been that it is not systematic, but instead often follows a conventional trial and errorapproach to drug discovery. In this approach, clinical development involves the treatment of large populations from which a defined subpopulation that responds totreatment is identified. As a result, this approach can be time-consuming and costly, with success often uncertain.The Epizyme ApproachWe are discovering and developing inhibitors of CMPs as novel precision therapeutics for patients with cancer and other diseases with significant unmet medicalneeds. Our focus is on the discovery, development and eventual commercialization of small molecule inhibitors of CMPs for applications in diseases that areuniquely dependent on the enzyme activity of a specific CMP. Among the CMP target classes, we have had a particular emphasis on the HMTs, which have beenshown to play pathogenic roles in a number of human diseases. Today, we have programs in multiple CMP classes including HMTs. Beyond cancer, however,HMTs and other CMPs have been implicated as pathogenic drivers of a number of diseases with significant unmet medical need.Background of Epigenetics and Chromatin Remodeling. Epigenetics refers to a broad regulatory system that controls gene expression without altering the makeupof the genes themselves. Genes are composed of DNA, and in nature, this DNA is wrapped around a core of proteins known as histones. Together, the DNA andhistone proteins form a complex known as chromatin that is the basic structural component of chromosomes. The structure of chromatin at specific gene locationscan exist either in an open state that permits gene expression or in a more closed state that silences gene expression. The shifting of gene-specific chromatinstructure—is referred to as chromatin remodeling. Chromatin remodeling is affected by the reversible placement of small chemical groups—acetyl groups, methylgroups and others—onto specific sites on the DNA and the histone proteins, in concert with enzyme-catalyzed topographical changes to the contacts between DNAand histones. Some CMPs place these chemical groups onto specific sites on histones or DNA, some remove these marks in site-specific ways, others recognize theuniquely marked sites on histones and bind to these marked sites, and still other CMPs drive topographical changes to histone-DNA interactions within chromatin.Where, when and how such chromatin remodeling reactions occur, determines which genes in a cell are turned “on” or “off” at any particular time. When thefunction of these CMPs is altered, the program of gene expression is changed in ways that often leads to disease.Background on Cancers Characterized by Dysregulation of EZH2. EZH2 is an HMT that can become an oncogenic driver for NHL and a variety of other solidtumors, such as MRT, epithelioid sarcoma and MRTO. As a result, EZH2 has become an important target of oncological drug research. 7Table of ContentsMolecularly Defined Solid TumorsBackground on INI1-Negative Solid Tumors . INI1 and SMARCA4 are subunits of SWI/SNF, a chromatin modifying protein complex, which opposes the activityof PRC2, the complex within which EZH2 resides. Loss of INI1 or SMARCA4 in specific cell backgrounds is believed to cause dysregulation in the balancebetween SWI/SNF and PRC2, and thus cause tumors to become sensitive to EZH2 inhibition. This effect was observed in a preclinical study of tazemetostat in axenograft model of MRT in which tazemetostat caused a dose dependent regression in INI1-negative tumors. INI1-negative tumors can appear in many differenttissue types, and can present as epithelioid sarcoma, MRT, extraskeletal myxoid chondrosarcoma, peripheral nerve sheath tumor, myoepithelial carcinoma andrenal medullary carcinoma, among several others. SMARCA4-negative tumors can also appear as different tumor types, including MRTO.INI1-negative or certain SMARCA4-negative tumors are typically aggressive cancers with few to no approved treatments. For example, current treatment of MRTconsists of surgery, chemotherapy and radiation therapy, which are associated with limited efficacy and significant treatment-related morbidity in this population.INI1-negative tumors are most commonly seen in infants through young adults, while SMARCA4-negative tumors are most commonly seen in teenagers andyoung adults. We believe that approximately 2,000 new patients with INI1-negative tumors and certain SMARCA4-negative tumors are diagnosed annually in theUnited States and other major pharmaceutical markets; however, we believe that the actual number may be higher, as these types of molecularly defined cancersare significantly under-reported today. MRTO accounts for less than 1% of all ovarian cancer diagnoses, with an average age of 24 years at diagnosis. MRTO ischaracterized by an aggressive clinical course with a two-year survival rate of less than 35%.Preclinical Studies—Solid Tumors. In addition to genetic alterations in EZH2 itself, alterations in distal genes can also lead to an oncogenic dependency on EZH2activity. Members of the SWI/SNF chromatin remodeling complex are frequently mutated in various tumor types, and loss of the INI1 or SMARCA2/A4 subunitscan inhibit SWI/SNF activity, thereby causing enhanced EZH2 activity at select tumor suppressor genes due to the opposing activity of SWI/SNF and PRC2.Consistent with this mechanism, tazemetostat has demonstrated activity in preclinical in vitro and in vivo studies against select INI1-negative and SMARCA2/A4-deficient tumors including MRT and MRTO.Tazemetostat Clinical Program in Molecularly Defined Solid TumorsOur clinical investigation of tazemetostat began with a first-in-human mega-study that included Phase 1 dose escalation cohorts in solid tumors and NHL, doseexpansion cohorts in solid tumors and NHL, a food effect sub-study and a drug-drug interaction sub-study. Our Phase 1 study in patients with relapsed or refractoryNHL or in patients with advanced solid tumors was conducted globally. We completed enrollment in the study with 64 patients. Interim results from the Phase 1study, with a focus on efficacy results for the solid tumor patients and safety results on the entire study population, which at that time totaled 51 patients, werereported at the European Cancer Congress, or ECC, in Vienna, Austria, on September 26, 2015.The primary objective of the Phase 1 study was to evaluate the safety and tolerability of tazemetostat and to determine the recommended dose for Phase 2 trials. Inthe Phase 1 trial, tazemetostat was administered orally as a monotherapy, twice daily in continuous 28-day cycles. In the dose escalation portion of the study,patients were enrolled in one of five dose cohorts at dose levels of 100, 200, 400, 800, or 1600 mg twice daily. In the dose expansion portion of the study, patientsreceived either 800 or 1600 mg twice daily. In the food effect portion of the study, patients received a single 200 mg dose, with or without food, on the eighth dayprior to the start of continuous dosing, a single 200 mg dose, with or without food, one day prior to the start of continuous dosing, and 400 mg twice daily, from thestart of the continuous dosing phase. In the drug-drug interaction portion of the study, patients received midazolam dosed with tazemetostat to evaluate the effecton cytochrome P450 3A-mediated drug metabolism. Cytochrome P450 3A is one member within a family of enzymes involved in the metabolism of manymedicines, and dosing tazemetostat with midazolam in a clinical study is a common way of evaluating potential interactions with other drugs that are metabolizedby this pathway. 8Table of ContentsAs of the data cutoff of August 31, 2015, we had enrolled 30 patients with solid tumors into this Phase 1 study. Of these 30 patients, eight had INI1-negativetumors, comprised of five with MRT and three with epithelioid sarcomas. Additionally, three patients had SMARCA4-negative tumors including two patients withMRTO, which is also referred to as small cell carcinoma of the ovary hypercalcemic type, or SCCOHT. Nineteen patients had other solid tumors that were notcharacterized by INI1 or SMARCA4 loss. More than half of the solid tumor patients were relapsed or refractory and had been treated previously with three or moresystemic anti-cancer therapies. As of the August 31, 2015 cutoff date, the following clinical data were reported: • A total of 11 patients with INI1-negative or SMARCA4-negative tumors had been treated. • Five of the 11 patients with INI1- or SMARCA4-negative tumors experienced clinical benefit consisting of a complete response, or CR, partialresponse, or PR, or prolonged stable disease, or SD. • Of the five patients with an INI1-negative malignant rhabdoid tumor, one patient achieved a CR at week eight and had remained on study and in CRthrough week 65. • Of three patients with SMARCA4-negative tumors, two patients presented with MRTO. One MRTO patient achieved a PR at week 8 and hadremained on study through week 25. A second MRTO patient achieved SD and had remained on study through week 26. • Of three patients with an INI1-negative epithelioid sarcoma, two patients had remained on study with SD through at least week 24. • Clinical activity was not observed in the 19 patients with other tumors, including the three patients with synovial sarcomas. • Inhibition of EZH2, as measured by post-treatment H3K27 trimethylation compared to baseline, was observed in tumor tissue of INI1-negativepatients as assessed by immunohistochemistry.We believe stable disease is a clinically meaningful outcome in this patient population, where in a clinical study of children with rhabdoid tumors, the mediansurvival was less than one year. At the 2015 ECC, Dr. Viktor Grünwald, professor at the Medical School of Hanover, Germany, reported data from a cooperativestudy with The European Organisation for Research and Treatment of Cancer, demonstrating that for the population of patients with soft tissue sarcoma in thestudy, stable disease was as good a predictor of overall survival as was a composite of PRs and CRs.At the 57 th American Society of Hematology Annual Meeting, or the 2015 ASH Annual Meeting, in Orlando, Florida on December 7, 2015, we presented updatedsafety data on the overall patient population, which included 55 patients with molecularly defined solid tumors as well as NHL, showing tazemetostat continued tobe generally well tolerated.Based on the Phase 1 study results, we are conducting a registration-supporting, global Phase 2 study in patients with INI1-negative solid tumors and synovialsarcoma. This study is enrolling up to 180 patients. The patients in the trials are stratified into one of five cohorts: • Epithelioid sarcoma . Epithelioid sarcoma is a soft tissue sarcoma characterized by loss of INI1. There are currently no approved systemic therapies forthe treatment of patients with epithelioid sarcoma, and outcomes are extremely poor. Following review by the Independent Data MonitoringCommittee for this study, we expanded the targeted enrollment in this cohort from 30 to 60 patients based on encouraging early activity, includingconfirmed objective responses. This study represents the largest trial conducted to date in patients with this rare tumor type. • Rhabdoid tumors . Rhabdoid tumors are aggressive cancers with few to no approved treatments today. Current treatment of malignant rhabdoid tumorsconsists of surgery, chemotherapy and radiation therapy, which are associated with limited efficacy and significant treatment-related morbidity. They 9Table of Contents can be characterized by loss of INI1, as in the case of MRT, rhabdoid tumor of kidney and AT/RT, or by the loss of SMARCA4, as in the case ofMRTO. Target enrollment in this cohort is up to 30 patients. • Other INI1-negative tumors . This arm of the study includes multiple different INI1-negative tumors that are not defined by the other four arms,including chordoma, other INI1 sarcomas, malignant peripheral nerve sheath tumor and myoepithelial carcinoma. Target enrollment in this cohort isup to 30 patients. • Renal medullary carcinoma . Renal medullary carcinoma is a rare and highly aggressive INI1-negative tumor of the kidney predominantly found inpatients with sickle cell trait. Target enrollment in this cohort is up to 30 patients. • Synovial sarcoma . Unlike the cancers in the other four arms of the study, synovial sarcoma is characterized by a functional dysregulation of INI1,rather than by a complete loss of INI1. The synovial sarcoma arm of the Phase 2 trial has been fully enrolled at approximately 30 patients. Althoughthis arm of the study surpassed its interim futility hurdle, and as of March 1, 2017 some patients remain on treatment, we concluded that the activity oftazemetostat in this cohort was insufficient to continue further investigation of tazemetostat in this population as a monotherapy.Patients in the five-arm Phase 2 study in molecularly defined solid tumors are dosed at 800 mg twice daily with tablets taken orally. The primary endpoint for theepithelioid sarcoma arm is a composite endpoint including overall response rate and disease control rate. The primary endpoint for the synovial sarcoma arm isdisease control, defined as a CR, PR or SD, at 16 weeks. The primary endpoint for the other cohorts is overall response rate. Secondary endpoints include durationof response, overall survival, progression-free survival, or PFS, overall survival and safety and pharmacokinetics. Pending abstract acceptance, we plan to presentinterim data from the ongoing Phase 2 study in molecularly defined solid tumors at the American Society of Clinical Oncology Annual Meeting, or ASCO, inChicago, Illinois in June 2017.In parallel to the Phase 2 adult study, we are conducting a global Phase 1 dose-escalation and expansion study of tazemetostat in approximately 110 children withINI1-negative solid tumors. In this trial, we are using an oral suspension formula of tazemetostat. As of March 1, 2017, we were progressing with the doseescalation portion of the trial. The primary endpoint of the study is safety, with the objective of establishing the recommended Phase 2 dose in pediatric patients.Secondary endpoints include pharmacokinetics, objective response rate, duration of response, PFS and overall survival. In June 2016, we were invited to speak atthe FDA Pediatric Subcommittee of the Oncologic Drugs Advisory Committee meeting to review our ongoing Phase 1 pediatric study. We received valuablefeedback from Committee members on developing tazemetostat to treat rare and extremely aggressive cancers in pediatric patients.Tazemetostat has been granted orphan drug designation by the FDA for the treatment of MRT. The orphan drug designation applies to INI1-negative MRT as wellas SMARCA4-negative MRTO.Mesothelioma with BAP1 loss-of-functionBackground on Mesothelioma. Mesothelioma is a rare form of cancer that typically occurs in the lining surrounding the lungs but can also occur in the liningsurrounding other organs. Relapsed or refractory mesothelioma remains an unmet medical need. First line treatment typically includes the chemotherapy drugscisplatin and pemetrexed (Alimta). Mesothelioma is a very difficult to treat disease, as fewer than 10% of patients live five years following diagnosis. Medianoverall survival after standard of care treatment is approximately 13 months. We estimate the total annual incidence of mesothelioma is approximately12,000 patients in the major pharmaceutical markets. Current literature estimates BAP1 loss-of-function to be associated with approximately 46% to 66% ofmesothelioma cases. 10Table of ContentsPreclinical Studies—Mesothelioma. In preclinical studies of mesothelioma, BAP1 loss-of-function led to increased expression and activity of EZH2. In addition,in animal models, inhibition of EZH2 by tazemetostat inhibited growth of tumor cells in mesothelioma characterized by BAP1 loss-of-function.Tazemetostat Mesothelioma Clinical ProgramWe are conducting a global Phase 2 monotherapy trial of tazemetostat in relapsed or refractory patients with mesothelioma characterized by BAP1 loss-of-function.This trial will enroll up to 67 patients with relapsed or refractory mesothelioma. The first part of the trial will evaluate safety and pharmacokinetics in 12 patients,regardless of BAP1 status. The second phase of the trial will evaluate disease control rate in 55 patients with mesothelioma characterized by BAP1 loss-of-function.The first patient in the study was dosed in August 2016 and enrollment is ongoing. Patients are dosed at 800 mg twice daily with tablets taken orally. The primaryendpoint of the trial is disease control rate, defined as CR, PR, or SD, at 12 weeks.Other Solid Tumor TypesIn October 2016, we announced a CRADA with the NCI to evaluate tazemetostat in clinical trials in a variety of hematologic malignancies and solid tumors. Theinitial NCI-sponsored study under the CRADA will evaluate tazemetostat in a Phase 2 clinical trial in adult patients with ovarian cancer and in a Phase 2 study inpediatric patients with solid tumors and lymphoma. As part of the agreement, additional clinical trials will be considered. NCI will predominantly fund the studiesand manage study operations. In preclinical studies conducted by us and third parties, inhibition of EZH2 reduced ovarian tumor cell growth.Non-Hodgkin LymphomaBackground on NHL. Two types of NHL, DLBCL of germinal-center origin and FL, are associated with oncogenic EZH2 mutations. In our preclinical studies, weobserved that NHL cells were sensitive to EZH2 inhibitors such as tazemetostat and that NHL cells bearing EZH2 mutations were particularly responsive to suchtreatment. EZH2 plays a critical role at various stages in normal B-cell maturation, and a particularly important role during the stage of B-cell development knownas the germinal center reaction. Recent research has demonstrated that EZH2 acts as a key gatekeeper for B-cell maturation and differentiation. Our own ongoingresearch suggests that it is a combination of stem or progenitor cell of origin together with specific genetic lesions that confer sensitivity of cancer cells to EZH2inhibition. An analysis of patient samples with germinal center derived NHL has revealed a number of genetic alterations that impact EZH2 function in ways thatmay confer sensitivity to EZH2 inhibition. While DLBCL and FL remain the initial NHL target patient populations for tazemetostat, our clinical and preclinicaldata suggest patients with other forms of B-cell NHL may also benefit from tazemetostat.The population of patients with NHL is large and growing. We estimate the annual incidence rate of NHL in the major pharmaceutical markets to be over 150,000patients. We estimate that the number of front line and relapsed/refractory DLBCL patients in the United States and the five largest EU countries as measured bypopulation, or EU5, that receive treatment in any year are approximately 50,000 and 21,000, respectively. DLBCL can be further subdivided into lymphomaoriginating from the germinal center of the lymph node, known as GCB DLBCL, and lymphoma originating from B-Cells of a more mature lineage, known as non-GCB DLBCL. We estimate that approximately 60% of DLBCL tumors are non-GCB and approximately 40% are GCB. We estimate that approximately 20% ofGCB DLBCL tumors carry an EZH2 activating mutation, representing an annual drug-treated relapsed or refractory population of approximately 1,700 patients inthe United States and EU5.We estimate that the number of FL patients in the United States and EU5 that receive treatment in any year is approximately 25,000 front line patients and 18,000relapsed/refractory patients. We estimate that approximately 20% of FL tumors carry an EZH2 activating mutation, representing an annual drug-treated relapsed orrefractory 11Table of Contentspopulation of approximately 3,600 patients in the United States and EU5. Common treatments for both DLBCL and FL include multi-agent chemotherapy, usuallycombined with rituximab (Rituxan), including R-CHOP, R-ICE and R-DHAP, along with other rituximab containing chemotherapy regimens, which are more oftenused as salvage regimens following the failure of front line treatment. R-CHOP and R-DHAP are combinations of the cancer agent rituximab, chemotherapy drugsand a steroid; R-ICE is a combination of rituximab and three chemotherapy drugs. Certain patients with DLBCL may also be treated with an allogeneic stem celltransplant.According to published data from GBI Research, the value of the NHL market in the major developed markets is expected to increase to more than $9 billion by2020. While current therapies successfully treat more than 50% of DLBCL patients in the front line setting, there remains an unmet medical need in patients whohave relapsed or are not responding to treatment. According to a review article published in the 2011 American Society of Hematology Education Book, afterstandard treatment, approximately one-third of DLBCL patients in a population based registry had refractory disease or had suffered a relapse within a median offour years. FL is generally considered to be incurable with existing therapies.Preclinical Studies—NHL. In preclinical development, tazemetostat demonstrated in vitro and in vivo activity in both mutant and wild-type EZH2 NHL. EZH2 isthe catalytic subunit of the PRC2 chromatin remodeling complex, and activating mutations led to increased trimethylation of H3K27, a PRC2 substrate, andsubsequent oncogenic repression of gene transcription. Consistent with this mechanism, in vivo mouse studies demonstrated drug efficacy and durability ofresponse in EZH2-mutant NHL models treated with tazemetostat. Our preclinical studies with wild-type EZH2 lymphoma cells suggest that EZH2 acts as a keyregulator of B-cell maturation, and therefore germinal center lymphomas are also likely to depend on EZH2 activity. We believe this hypothesis is supported bycumulative preclinical data with EZH2 inhibitors, and preclinical models demonstrating synergy of tazemetostat with B-cell signaling inhibitors, indicating thattazemetostat induces a cell fate decision.Tazemetostat NHL Clinical ProgramWe are executing a broad clinical development program for tazemetostat as both a monotherapy and combination treatment in relapsed/refractory and front-lineNHL, as summarized below. Tazemetostat—Monotherapy Clinical Trials for NHLInterim results from our Phase 1 study in patients with relapsed or refractory NHL or advanced solid tumors, including efficacy results for 21 NHL patients andsafety results from the entire study population of 45 patients, including patients with advanced solid tumors, were reported at the 2015 ASH Annual Meeting. 12Table of ContentsAll NHL patients were either refractory to or relapsed from prior therapy, which included autologous stem cell transplant in eight of the 21 patients with NHL whowere dosed in the study. Of these 21 patients, 18 patients, or 85%, had been treated previously with three or more systemic anti-cancer therapies. As of theNovember 7, 2015 cutoff date, the following clinical data were reported: • Twenty-one patients with relapsed or refractory NHL were enrolled into the Phase 1 study; 16 of the 21 patients were response-evaluable as defined bythe study protocol. • Tazemetostat showed activity across different subtypes of NHL, including germinal center and non-germinal center DLBCL and FL, and in DLBCL,in patients with wild-type EZH2 and mutant EZH2. All patients with FL in the Phase 1 study had wild-type EZH2. • Eight of 16 response-evaluable NHL patients achieved an objective response. • The 800 mg twice daily dose showed superior tolerability, equivalent anti-tumor activity and equivalent pharmacodynamic activity as compared to the1600 mg twice daily dose. • Tazemetostat was well tolerated. The majority of adverse events were grade 1 or grade 2 within the 55 patients with NHL and solid tumors who wereevaluable for safety. The most common adverse events, regardless of attribution, were asthenia, anorexia, thrombocytopenia, nausea, constipation,diarrhea, and vomiting. Four grade 3 or greater treatment-related adverse events have been observed including one each of: grade 3 hypertension,grade 3 liver function test elevation, grade 4 thrombocytopenia, and grade 4 neutropenia.In addition, at the American Society of Hematology Meeting on Lymphoma Biology, or ASH Lymphoma, in June 2016, we presented an update on the patientswith relapsed or refractory NHL in our Phase 1 study of tazemetostat. As of the data cutoff date of May 27, 2016, three patients with NHL remained on study, allwith CRs, including one patient whose response evolved from PR to CR at 22 months.Based on the Phase 1 results, we are evaluating tazemetostat in a global five-arm Phase 2 study in up to 270 patients with relapsed or refractory NHL across fivecohorts. Patients are dosed at 800 mg twice daily with tablets taken orally. The three arms enrolling patients with DLBCL are enrolling 60 patients each, and thetwo arms enrolling patients with FL are enrolling 45 patients each. The study cohorts are as follows: • DLBCL with Germinal Center B-cell, or GCB, subtype and EZH2 mutations; • DLBCL with GCB subtype and wild-type EZH2; • DLBCL with non-GCB subtype; • FL with EZH2 mutations; and • FL with wild-type EZHZ2.The primary endpoint of the study is overall response rate. Secondary endpoints include duration of response, progression free survival, overall survival, safety andpopulation pharmacokinetics.In June 2016, also at ASH Lymphoma, we presented interim data from this ongoing, global, registration supporting five-arm Phase 2 study of tazemetostat inpatients with relapsed or refractory NHL. The presentation represented an early evaluation of the data, as the study was less than one-third enrolled as of the datacutoff date of May 27, 2016, with many patients still on treatment. Tazemetostat was generally well tolerated and demonstrated clinical activity consisting ofobjective responses in a heavily pre-treated patient population.As of the data cutoff date of May 27, 2016, 82 patients across all five study arms were evaluable for safety. Efficacy was assessed on 47 evaluable patients from thefour cohorts that had surpassed their pre-specified futility hurdles as of the data cutoff date. The non-evaluable patients included 16 patients in the arms that hadsurpassed futility but were too early for efficacy evaluation or for whom data were not yet entered and 19 patients from the FL with wild-type EZH2 cohort, whichsurpassed its pre-specified futility hurdle later in 2016. 13Table of ContentsTazemetostat was generally well tolerated in the overall patient population, consistent with the experience observed in the Phase 1 trial. The majority of adverseevents were grade 1 or grade 2 within the 82 safety-evaluable patients. The most common treatment-related adverse events (greater than or equal to 5%) werenausea, asthenia, thrombocytopenia, neutropenia and fatigue, of which seven were grade 3 or higher. All adverse events resulted in low rates of both dosereductions (4%) and dose discontinuations (6%).Among the 47 efficacy-evaluable patients, objective responses, which consist of either a CR or a PR were observed. In addition, SD was also observed in asignificant percentage of patients. In the Phase 1 experience, Epizyme observed responses that evolved over time from SD, to a PR, and ultimately to a CR. As ofthe data cutoff, best responses across the four cohorts were as follows: • DLBCL with GCB subtype and EZH2 mutations (n=5): one PR and two SD; • DLBCL with GCB subtype and wild-type EZH2 (n=19): two CRs, one PR and six SD; • DLBCL with non-GCB subtype (n=20): two CRs, four PRs and five SD; and, • FL with EZH2 mutations (n=3): three PRs.All of the patients who had achieved a CR and the majority of patients who had achieved a PR or SD as best response were still on tazemetostat treatment as of thedata cutoff date.Patients in the Phase 2 trial design are assigned to each cohort based on their cell of origin and EZH2 mutational status. Per the protocol, the cell of originclassification was originally conducted according to a test known as the Hans algorithm. Subsequently, we evaluated cell of origin in the patients in the Phase 2study using the newer and more accurate cell of origin classifier, Nanostring’s Lymph2Cx test, or Nanostring. Using Nanostring, we reclassified two patients fromthe non-GCB DLBCL arm with PRs to the GCB DLBCL arm with EZH2 mutation. Utilizing the same data set presented at ASH Lymphoma and the cell of origindetermination by Nanostring, the efficacy evaluation by cohort changes as follows: • DLBCL with EZH2 mutations (n=7): three PR and two SD, or 43% overall response rate; • DLBCL with wild-type EZH2 (n=35): four CRs, three PR and ten SD, or 20% overall response rate; • FL with EZH2 mutations (n=3): three PRs, or 100% overall response rate.The revised efficacy evaluation under Nanostring does not include two patients, one with SD and one with progressive disease as best response, previously reportedas DLBCL with wild-type EZH2, who will be reassessed based on circulating tumor DNA. As of March 1, 2017, we had completed enrollment in the three arms ofthe study with wild-type DLBCL and FL. We are continuing to enroll the two remaining arms for GCB DLBCL and FL patients with EZH2 mutations. Pendingabstract submission and acceptance, we plan to present interim data from the ongoing five-arm Phase 2 NHL study at the International Conference on MalignantLymphoma, or ICML, in Lugano, Switzerland in June 2017.In November 2016, we received Fast Track designation from the FDA for DLBCL patients with EZH2 mutations. Within the NHL market, we believe DLBCL andFL patients whose tumors contain activating EZH2 mutations may represent the fastest path to NDA submission and commercial launch for tazemetostat.Tazemetostat—Combination Clinical Trials for NHLIn addition to evaluating tazemetostat as a monotherapy, we are investigating the combination of tazemetostat with other cancer agents in both therelapsed/refractory and front-line settings. • Tecentriq . Based on preclinical evidence showing that EZH2 inhibition may enhance the activity of checkpoint inhibitors, we entered into acollaboration agreement with Genentech to conduct a global Phase 1b study combining tazemetostat with Tecentriq, the first FDA approved PD-L1inhibitor. The 14Table of Contents global study was initiated in the fourth quarter of 2016 and is being conducted by Genentech. The study will enroll approximately 45 patients withrelapsed or refractory DLBCL. Primary endpoints in the trial include safety and combination tolerability with the objective of establishing arecommended Phase 2 dose. Secondary and exploratory endpoints include overall response, objective response, duration of response,pharmacokinetics and preliminary biomarker assessment. • R-CHOP . We are studying tazemetostat in combination with R-CHOP, the current standard of care for newly-diagnosed patients with DLBCL, incollaboration with LYSA. We have generated preclinical data showing synergy between tazemetostat and the chemotherapy and steroid components ofR-CHOP. This multi-center Phase 1b/2 study in front-line, elderly high-risk patients with DLBCL will enroll up to 133 patients. Primary endpoints inthe trial include CR rate as well as safety and tolerability of the combination. Secondary endpoints include overall response rate and progression freesurvival. The trial was initiated in the fourth quarter of 2016. • Prednisolone . In March 2017, we opened an additional arm of our ongoing Phase 2 NHL study to investigate tazemetostat in combination withprednisolone for patients with relapsed or refractory DLBCL. We determined to conduct this combination trial based on substantial preclinical synergydata with prednisolone, a standard agent in a variety of NHL treatment regimens, including R-CHOP. The objective of this new arm of the ongoingPhase 2 NHL study is to evaluate the clinical synergy of the agents and to explore the potential of prednisolone to slow progression in patients withaggressive disease. • FL combination . We have seen extensive preclinical synergy of tazemetostat with a number of targeted agents and chemotherapies used for, or indevelopment for the treatment of, FL. We plan to initiate a combination study of tazemetostat with one or more of these agents in 2017.DOT1L CancersBackground on DOT1L Cancers. DOT1L is an HMT that can become oncogenic and cause certain subtypes of acute leukemia, such as MLL-r.MLL-r is an aggressive, genetically-defined subtype of two of the most common forms of acute leukemia, ALL and AML. In an article in the journal Blood inDecember 2002, the authors estimated that the five-year overall survival rate for adult patients with the MLL-r subtype of AML ranges from approximately 5 to24%. The disease predominantly occurs in two different age ranges, an adult population and an infant/pediatric population. While they share a common geneticalteration, the adult disease is frequently a secondary leukemia resulting from prior chemotherapy for a different, unrelated cancer and the childhood disease is ofunknown origin. MLL-r is caused by a chromosomal translocation involving the MLL gene. The translocation results in DOT1L being recruited to a specific placein the chromosome where it would not normally be present. As a result, DOT1L causes inappropriate histone methylation at this location, which results in theincreased expression of genes involved in causing leukemia. There are no approved therapies specifically indicated for MLL-r. Physicians treat this hematologicalcancer with therapies approved for other acute leukemia. Patients with AML and ALL typically are treated with intensive multi-agent chemotherapy and high riskpatients with ALL and AML who enter remission and have a matched donor often receive an allogeneic stem cell transplant.Pinometostat—DOT1L InhibitorWe are developing pinometostat as an intravenously administered small molecule inhibitor of DOT1L for the treatment of acute leukemias with alterations in themixed lineage leukemia, or MLL, gene, specifically rearrangements of MLL as a consequence of chromosomal translocation, referred to as MLL-r, which includespartial tandem duplications of the MLL gene, referred to as MLL-PTD. We invented pinometostat using our proprietary product platform. 15Table of ContentsUnder the CRADA that we entered with the NCI in October 2016 for pinometostat, the NCI has agreed to evaluate the safety and efficacy of pinometostat inpatients with acute leukemias. Initial studies will evaluate the combination of pinometostat with standard-of-care therapies or targeted agents in acute myeloidleukemia, acute lymphoid leukemia, or MLL-r. As part of the agreement, additional clinical trials will be considered. NCI will predominantly fund the studies andmanage study operations.We and Celgene are exploring in preclinical studies combinations of pinometostat with other anti-cancer agents to enhance pinometostat’s efficacy in the adultMLL-r population. We retain all U.S. rights to pinometostat and have granted Celgene an exclusive license to pinometostat outside of the United States.Pinometostat has been granted orphan drug designation by the FDA and the European Commission for the treatment of acute myeloid leukemia, or AML, and acutelymphoblastic leukemia, or ALL.Previously, we conducted a Phase 1 study in 51 adults with MLL-r and a Phase 1 study in 18 children with MLL-r. Although two patients in the adult studyexperienced CRs, we did not see sufficient activity to justify continuing development of pinometostat as a monotherapy in this indication.Other Pipeline ProgramsIn addition to tazemetostat and pinometostat, we also have a pipeline of small molecule inhibitors in preclinical development that target our other prioritized CMPs.These programs are directed to specific cancers, including both hematological malignancies and solid tumors.Under our collaboration with GSK, GSK is developing small molecule inhibitors against three novel HMT targets, which were discovered by us using ourproprietary drug discovery platform. In September 2016, GSK advanced the first of these three programs into clinical testing. This drug candidate, GSK3326595, aPRMT5 inhibitor, is being tested in a Phase 1 clinical trial in patients with solid tumors and NHL. GSK has worldwide rights to the inhibitors of the three HMTtargets that we delivered to them under the collaboration.Under our collaboration with Celgene, we are developing small molecule inhibitors directed to three HMT targets, in addition to pinometostat. Under thecollaboration, we are responsible for all preclinical discovery work as well as Phase 1 clinical development for all three targets. Celgene has the option to acquireworldwide rights to inhibitors directed at two of the three targets, and the option to acquire ex-U.S. rights to inhibitors directed to the third target. We retain rightsto develop and commercialize inhibitors directed at the third target in the United States.In addition to tazemetostat, pinometostat and our partnered programs, we have ongoing drug discovery programs directed to multiple other novel CMP targets. Weown all development and commercialization rights to these programs.The Epizyme Discovery PlatformTargeting oncogenic CMPs affords us multiple opportunities to create, develop and commercialize novel, precision therapeutics. To realize the full breadth of thisopportunity, we created and continue to expand and enhance our proprietary discovery platform. Our platform aims to optimize the effectiveness of drug discoveryand development by creatively addressing four key components of the process:Judicious Target Selection . Selection of an appropriate target is a critical and challenging aspect of drug discovery. We are meeting the challenges of targetselection with a unique combination of novel, optimized approaches to CRISPR technology, proprietary chemical biology methods and cellular and organismalbiology 16Table of Contentsapproaches that allow us to rigorously and rapidly test targeting hypotheses. Our selection of a target CMP for drug discovery generally requires five criticalelements to be satisfied. The target must: • Be a causal driver of pathogenicity and/or represent a unique vulnerability to therapeutic intervention, thus creating a basis for a wide therapeuticindex; • Offer a strategy for patient stratification; • Be amenable to inhibition by a small molecule by virtue of the target’s molecular structure, and small molecule inhibition of the target must be diseasemodifying; • Address a significant unmet medical need for patients; and • Represent a meaningful commercial opportunity.With respect to the first two of these elements, a common approach in drug discovery is to develop a small molecule drug candidate against a target which itselfcontains a genetic lesion that causes disease. This is exemplified among the CMPs by gain-of-function mutations within the HMT target EZH2 in subsets ofgerminal center lymphoma patients. However, through our combined functional genomics and chemical biology approaches, we have also revealed previouslyunrecognized synthetic lethal relationships affecting CMPs, wherein a genetic lesion that occurs at an unrelated gene product (protein) creates a unique dependencyof a disease cell on the enzymatic activity of the CMP. This provides a novel approach to developing small molecule drugs that impact genetic lesions that weregenerally considered not amenable to drug development. For example, we have observed several cases in which pathogenic loss-of-function genetic lesions at oneprotein creates a unique reliance of a disease state on the enzymatic activity of a seemingly unrelated CMP, which can then be targeted for small molecule drugtherapy. One example of this is the way in which INI deletions render certain cells sensitive to EZH2 inhibition.Deep Understanding of Target Biochemistry and Biology in the Context of Pathophysiology . Once a target is selected, we invest heavily in understanding thebiochemistry and biology of that target in the context of cellular pathophysiology. Knowing how a CMP functions in the cell(s) of interest, details of its catalyticmechanism, which ancillary proteins bind to the target within the cell and impact activity, and its pattern of substrate utilization, all contribute importantly to ourability to create relevant biochemical and cellular assays for compound screening and evaluation.Comprehensive Molecular Discovery . We take a broad approach to drug discovery that includes an early emphasis on optimization of compounds by evaluatingthem against multiple criteria. Rather than focusing exclusively on target potency, we evaluate our chemical leads for a spectrum of pharmacological properties atan early point in the drug discovery process. Compounds are simultaneously optimized for target and cellular potency, drug-target residence time, drug metabolismand pharmacokinetics, or DMPK properties, and oral bioavailability. To accomplish this, we integrate a number of molecular science skill bases, together withbiological sciences, to form comprehensive matrix discovery teams. These include: medicinal chemistry, enzymology, structural biology, biochemistry andbiophysics and preclinical DMPK. We have also applied of comprehensive molecular discovery approach not only to individual targets, but also to target classes,such as the HMTs, through our cross-screening paradigm. As a result, we have created a proprietary library of CMP-targeted compounds that today numbers over35,000 compounds. We have also facilitated drug discovery by solving the co-crystal structures of over 800 CMPs in complex with our small molecule inhibitors.This has allowed us to develop a deep understanding of target class medicinal chemistry and has resulted in the creation of novel chemical starting points fortargeted discovery programs.Early Integration of Preclinical and Clinical Development. We involve our preclinical and clinical teams early in the drug discovery process. We engage ourclinicians and translational medicine experts during the target selection process to ensure that informed decisions are being made with respect to our five keyelements of target selection. These researchers continue to participate in the program matrix teams to ensure early development of cogent approaches to clinicaltranslation and development. For example, a clear understanding of patient 17Table of Contentspopulation and their needs with respect to route of administration, dosing form, and dosing schedule, informs team decisions with respect to multi-parametricpharmacological optimization of lead compounds. Likewise, expertise in chemistry, manufacturing and controls, or CMC, and safety assessment are engaged earlyin the discovery process to ensure successful transition of compounds from discovery through clinical evaluation.We believe that our discovery platform provides us with an important competitive advantage in identifying pathogenic CMPs and creating novel precisiontherapeutics to treat the diseases caused by these CMPs.CollaborationsWe have entered into several key strategic collaborations. These therapeutic collaborations have provided us with $207.8 million in non-equity funding throughDecember 31, 2016. Our Celgene and GSK collaborations provide us with the potential for significant research, development, regulatory and sales-based milestonepayments as well as royalties or profit sharing on net product sales. Our Celgene collaboration also provides us with development co-funding. In addition, we haveentered into a collaboration to develop a companion diagnostic with Roche Molecular. Key terms of these collaborations are summarized below.CelgeneOverview . In July 2015, we entered into an amendment and restatement of our collaboration and license agreement dated April 2012 with Celgene. Under theoriginal agreement, we granted Celgene an exclusive license, for all countries other than the United States, to small molecule HMT inhibitors targeting DOT1L,including pinometostat, and an option, on a target-by-target basis, to exclusively license, for all countries other than the United States, rights to small moleculeHMT inhibitors targeting any other HMT targets, excluding EZH2 and targets covered by our collaboration and license agreement dated January 8, 2011 with GSK.Under the original agreement, Celgene’s option was exercisable during an option period that would have expired in July 2015. Under the amended and restatedcollaboration and license agreement: • Celgene retains its exclusive license to small molecule HMT inhibitors targeting DOT1L, including pinometostat, • Celgene’s option rights have been narrowed to HMT inhibitors targeting three predefined targets (the “Option Targets”), • The exclusive licenses to HMT inhibitors targeting two of the Option Targets that Celgene may acquire have been expanded to include the UnitedStates, with the exclusive license to the third Option Target continuing to be for all countries other than the United States, • Celgene’s option period has been extended for each of the Option Targets and is exercisable at the time of our investigational new drug, or IND, filingfor an HMT inhibitor targeting the applicable Option Target, upon the payment by Celgene at such time of a pre-specified development milestone-based license payment, • Celgene’s license may be maintained beyond the end of Phase 1 clinical development for each of the Option Targets, upon payment by Celgene atsuch time of a pre-specified development milestone-based license payment, and • Our research and development obligations with respect to each Option Target under the amended agreement have been extended for at least anadditional three years, subject to Celgene exercising its option with respect to such Option Target at IND filing. Subject to our Opt-Out rightsdescribed below, our research and development obligations have been expanded to include the completion of a Phase 1 clinical trial as to each OptionTarget following Celgene’s exercise of its option at IND filing.To date, we have received $75.0 million of upfront payments (including $10.0 million as part of the amended and restated agreement) and $25.0 million from thesale of our series C preferred stock to an affiliate of Celgene, of 18Table of Contentswhich $3.0 million was considered a premium and included as collaboration arrangement consideration for a total upfront payment of $78.0 million. In addition, wehave received a $25.0 million clinical development milestone payment in 2014 and $7.0 million of global development co-funding through December 31, 2016. Weare eligible to earn up to $75.0 million in development milestones and license payments, up to $365.0 million in regulatory milestone payments and up to $170.0million in sales milestone payments related to the Option Targets. We remain eligible to earn $35.0 million in an additional clinical development milestonepayment and up to $100.0 million in regulatory milestone payments related to DOT1L.We are also eligible to receive royalties as follows: • As to DOT1L, we retain all product rights in the United States and are eligible to receive royalties at defined percentages ranging from the mid-singledigits to the mid-teens on annual net product sales outside of the United States, subject to reductions in specified circumstances; • As to the Option Target for which Celgene’s option rights do not include the United States, if Celgene exercises its option as to such Option Target, wewill retain all product rights in the United States and will be eligible to receive royalties, once an initial threshold of net product sales (for which wewill not receive royalties) is exceeded, at defined percentages ranging from the mid-single digits to the low-double digits on net product sales outsideof the United States, subject to reductions in specified circumstances; and • As to the other two Option Targets, if Celgene exercises its option as to those Option Targets, we will be eligible to receive royalties, once an initialthreshold of net product sales (for which we will not receive royalties) is exceeded, for each such Option Target at defined percentages ranging fromthe mid-single digits to the low-double digits on net product sales on a worldwide basis, subject to reductions in specified circumstances.For DOT1L and, after Celgene’s payment of the specified IND filing license payment for each Option Target, for each such Option Target, we are responsible forthe conduct and funding of Phase 1 clinical trials, subject to our right to opt-out of such responsibilities as described below. Celgene may obtain a license to smallmolecule HMT inhibitors targeting each Option Target at the time of our IND filing for an HMT inhibitor for such target by exercising its option and paying us aspecified license payment. Celgene may maintain its license with respect to an Option Target at the conclusion of the Phase 1 clinical trial of the Option Target bypaying us a specified additional license payment. If Celgene does not elect to obtain a license during the option exercise period applicable to an Option Target, or topay the specified IND license payment or end of Phase 1 license payment, we will retain worldwide rights to HMT inhibitors directed to the Option Target, otherthan HMT inhibitors that may be provided by Celgene if we were to agree to their introduction into the collaboration.Research Obligations. We are primarily responsible for the research strategy under the collaboration. During each applicable option period we are required to usecommercially reasonable efforts to carry out an agreed research plan for each Option Target, subject to our Opt-Out right described below. For the DOT1L targetand each of the Option Targets, we are required to conduct and solely fund development costs of the Phase 1 clinical trials for HMT inhibitors directed to suchtargets, including for pinometostat. After completion of Phase 1 development, as to DOT1L and the Option Target for which we retain U.S. rights, we and Celgenewill equally co-fund global development and each party will solely fund territory-specific development costs for its territory; and, as to the other two OptionTargets, after completion of Phase 1 development, Celgene will solely fund all development costs on a worldwide basis.Governance . Our collaboration with Celgene is guided by (a) a joint research committee, with authority over all activities performed under the research plan withrespect to the two Option Targets as to which we granted worldwide rights; (b) a joint development committee, with authority over shared development activitieswith respect to DOT1L and the Option Target for which we retain U.S. rights; and (c) a joint commercialization committee, with authority over thecommercialization of products developed under shared development 19Table of Contentsprograms with respect to DOT1L and the Option Target for which we retain U.S. rights. Subject to limitations specified in the amended and restated agreement, ifthe applicable governance committee is not able to make a decision by consensus and the parties are not able to resolve the issue through escalation to specifiedsenior executive officers of the parties, then (a) prior to Celgene’s exercise of its option, we generally have final decision-making authority over research anddevelopment matters with respect to the Option Targets; (b) with respect to DOT1L and any Option Targets for which Celgene has exercised its option, Celgenegenerally has final decision-making authority over global development matters, including over global activities and related expenses that we are obligated to co-fund, unless we exercise our opt-out right as to such licensed program, and except that with respect to the Option Target for which we retain U.S. rights, the partieshave mutual decision-making authority even after Celgene exercises its option as long as Celgene engages in a competitive development program with respect tosuch Option Target. Each party has final decision-making authority over commercialization matters in its respective territory.Opt-Out Right . On an Option Target-by-Option Target basis, we have the right, in our sole discretion, to opt-out of further participation in any research and/ordevelopment activities after completion of the initial research plan and prior to the filing of an IND for an HMT inhibitor directed to the applicable Option Target,or the Pre-IND Opt-Out. Following exercise of a Pre-IND Opt-Out, if Celgene exercises its option as to the Option Target, Celgene will no longer be required, tothe extent not already paid, to make the specified IND license payment or end of Phase 1 license payment to us, specified sales milestone payments will no longerbe payable and all royalties on net product sales of applicable licensed products that become payable to us will be reduced by a specified percentage. Additionally,if Celgene exercises its option as to such Option Target, we are obligated to grant Celgene an exclusive worldwide license to HMT inhibitors directed to theapplicable Option Target, even if we would otherwise retain U.S. rights to HMT inhibitors directed to the applicable Option Target. Additionally, on a licensedprogram-by-licensed program basis, we have the right, in our sole discretion, to opt-out of further participation in and co-funding of development, other thanspecified costs necessary to complete development activities in process at the time we exercise our opt-out right. We can exercise our licensed program opt-outright at specified times: (a) when the clinical trial stopping rules set forth in a clinical trial protocol for DOT1L or the Option Target for which the we retain U.S.rights dictate that such clinical trial be stopped, or the Post-EOP1 Clinical Opt-Out; or (b) for any or no reason, in a licensed program for DOT1L or the OptionTarget for which we retain U.S. rights, during specified periods before the scheduled initiation of the first pivotal clinical trial or before the estimated date of filingof the first NDA for an HMT inhibitor directed to the licensed target or any time after regulatory approval of an HMT inhibitor directed to the licensed target, or theLate Stage Opt-Out. In the event of a Post-EOP1 Clinical Opt-Out, the royalties that become payable to us on net product sales of licensed products directed toDOT1L or the Option Target for which we retain U.S. rights, as applicable, will be reduced by a specified percentage. Following a Post-EOP1 Clinical Opt-Out ora Late Stage Opt-Out, we are no longer required to co-fund global development for the applicable program other than specified costs necessary to completedevelopment activities in process at the time we exercise our opt-out right, and we are obligated to grant Celgene an exclusive license to HMT inhibitors directed tothe applicable target in the United States. Following our exercise of a Post-EOP1 Clinical Opt-Out or a Late Stage Opt-Out, if any, we would be eligible to receivespecified milestone payments and royalties based on net product sales in the United States of HMT inhibitors directed to the licensed target in the event thatCelgene develops and commercializes a product in the United States.Exclusivity Restrictions . Subject to exceptions specified in the amended agreement, during the option period, we may not research, develop or commercializeHMT inhibitors directed to DOT1L and the three Option Targets. Subject to exceptions specified in the amended agreement, following each applicable optionperiod, we may not research, develop or commercialize HMT inhibitors directed to DOT1L or any target licensed by Celgene.Right of First Negotiation. The amended and restated agreement eliminated the right of first negotiation that we had previously granted to Celgene under theoriginal agreement with respect to business combination transactions that we may desire to pursue with third parties. 20Table of ContentsTerm and Termination . The amended and restated agreement with Celgene will expire on a product-by-product and country-by-country basis on the date of theexpiration of the applicable royalty term with respect to each licensed product in each country and in its entirety upon the expiration of all applicable royalty termsfor all licensed products in all countries. The royalty term for each licensed product in each country is the period commencing with first commercial sale of theapplicable licensed product in the applicable country and ending on the latest of expiration of specified patent coverage, specified regulatory exclusivity or 15 yearsfollowing the first commercial sale in the applicable country. Celgene has the right to terminate the amended agreement in its entirety, upon 60 or 120 days’ noticedepending on the timing of such termination. The amended agreement may also be terminated in its entirety during the option period, and on a licensed target-by-licensed target basis after the option period, by either Celgene or us in the event of a material breach by the other party. The amended agreement may be terminatedon a licensed target-by-licensed target basis by either Celgene or us in the event the other party, or an affiliate or sublicensee of the other party, participates oractively assists in a legal challenge to specified patents of the terminating party or in its entirety in the event the other party becomes subject to specifiedbankruptcy, insolvency or similar circumstances.GlaxoSmithKlineOverview . In January 2011, we entered into a collaboration and license agreement with GSK to discover, develop and commercialize novel small molecule HMTinhibitors directed to available targets from our product platform. Under the terms of the agreement, we granted GSK the option to obtain exclusive worldwidelicense rights to HMT inhibitors directed to three targets. In March 2014, we and GSK amended certain terms of this agreement for the third target, revising thelicense terms with respect to candidate compounds and amending the corresponding financial terms, including reallocating milestone payments and increasingroyalty rates as to the third target. Additionally, as part of the research collaboration provided for in the agreement, we agreed to provide research and developmentservices related to the licensed targets pursuant to agreed upon research plans during a research term that ended January 8, 2015, or earlier if selection of adevelopment candidate occurred.Under the agreement, we recorded a $20.0 million upfront payment, a $3.0 million payment upon the execution of the March 2014 agreement amendment, $6.0million of fixed research funding, $15.0 million of preclinical research and development milestone payments and $9.0 million for research and developmentservices. In addition, in the third quarter of 2016, we recognized a $6.0 million clinical milestone following GSK’s initiation of patient dosing in a Phase 1 clinicaltrial of a PRMT5 inhibitor that we discovered and licensed to GSK. We are eligible to receive up to $18.0 million in additional preclinical research anddevelopment milestone payments, up to $103.0 million in clinical development milestone payments, up to $278.0 million in regulatory milestone payments and upto $218.0 million in sales-based milestone payments. In addition, GSK is required to pay us royalties, at percentages from the mid-single digits to the low double-digits, on a licensed product-by-licensed product basis, on worldwide net product sales, subject to reduction in specified circumstances.For each selected target in the collaboration, we were primarily responsible for research until the earlier of selection of a development candidate for the target orJanuary 8, 2015, and GSK is solely responsible for subsequent development and commercialization. GSK provided a fixed amount of research funding during thesecond and third years of the research term and was obligated to provide research funding equal to 100.0% of mutually agreed research and development costs,subject to specified limitations, for any research activities we conducted in the fourth year of the research term. In December 2013, we and GSK agreed to theselection of a development candidate for an inhibitor of PRMT5, one of the three targets under the agreement, after which point GSK became solely responsible forsubsequent development and commercialization.Exclusivity Provisions . Subject to exceptions specified in the agreement, during the term of the agreement, we may not research, develop or commercialize HMTinhibitors directed to the three targets selected by GSK, other than pursuant to the agreement.Term and Termination. The agreement will expire in its entirety upon the expiration of all applicable royalty terms for all licensed products in all countries. Theroyalty term for each licensed product in each country is the 21Table of Contentsperiod commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the later of expiration of specified patentcoverage or ten years following the first commercial sale. GSK has the right to terminate the agreement at any time with respect to one or more selected targets orin its entirety, upon 90 days’ prior written notice to us. The agreement may also be terminated with respect to one or more selected targets or in its entirety by eitherGSK or us in the event of a material breach by the other party. The agreement may be terminated with respect to selected targets by us in the event GSKparticipates or actively assists in a legal challenge to one of the patents exclusively licensed to GSK under the agreement with respect to the applicable selectedtarget.EisaiOverview. In March 2015, we entered into an amended and restated collaboration and license agreement with Eisai, under which we reacquired worldwide rights,excluding Japan, to our EZH2 program, including tazemetostat. Under the amended and restated collaboration and license agreement, we will be responsible forglobal development, manufacturing and commercialization outside of Japan of tazemetostat and any other EZH2 product candidates, with Eisai retainingdevelopment and commercialization rights in Japan, as well as a right to elect to manufacture tazemetostat and any other EZH2 product candidates in Japan. Underthe original collaboration and license agreement, we had granted Eisai an exclusive worldwide license to our small molecule HMT inhibitors directed to EZH2,including tazemetostat, while retaining an opt-in right to co-develop, co-commercialize and share profits with Eisai as to licensed products in the United States.Under the terms of the original agreement, we recorded a $3.0 million upfront payment, $7.0 million in preclinical research and development milestone payments, a$6.0 million clinical development milestone and $22.7 million for research and development services through December 31, 2014. We were also eligible to earn upto a total of $195.0 million in clinical development, regulatory and sales-based milestone payments and to receive royalties on product sales. Upon the execution ofthe amended and restated collaboration agreement in March 2015, we agreed to pay Eisai a $40.0 million upfront payment. We also agreed to pay Eisai up to$20.0 million in clinical development milestone payments, up to $50.0 million in regulatory milestone payments and royalties at a percentage in the mid-teens onworldwide net sales of any EZH2 product, excluding net sales in Japan. We are eligible to receive from Eisai royalties at a percentage in the mid-teens on net salesof any EZH2 product in Japan.Under the original agreement, Eisai was solely responsible for funding all research, development and commercialization costs for licensed compounds. Under theamended agreement, we are solely responsible for funding global development, manufacturing and commercialization costs for EZH2 compounds outside of Japan,and Eisai is solely responsible for funding Japan-specific development and commercialization costs for EZH2 compounds. In connection with the amendment andrestatement of our collaboration and license agreement with Eisai, we and Eisai agreed to the transition to us of ongoing development and manufacturing activitiesthat were being conducted by or on behalf of Eisai. In January 2017, as part of Eisai’s obligations under the amended and restated collaboration agreement, Eisaienrolled and dosed the first patient in a Phase 1 study of tazemetostat in patients with relapsed or refractory B-cell NHL in Japan.In the event that we seek to license rights to a third party to develop or commercialize an EZH2 product in any country in Asia other than Japan, Eisai has a limitedright of first negotiation for such rights. In the event that we are awarded a priority review voucher from the FDA with respect to an EZH2 product, Eisai is entitledto specified compensation if we use the voucher on a non-EZH2 program or sell the voucher to a third party.Governance . Under the amended and restated collaboration and license agreement, development will be guided by a joint steering committee, with Epizymeretaining final decision making authority with respect to global development.Exclusivity Restrictions . Subject to exceptions specified in the agreement, for an exclusivity period extending until eight years after the first commercial sale of aproduct covered by the agreement, neither we nor Eisai may research, develop or commercialize HMT inhibitors directed to EZH2, other than pursuant to theagreement. 22Table of ContentsTerm and Termination . Our agreement with Eisai will remain in effect until the expiration of all payment obligations under the agreement with respect to alllicensed products. The royalty term for each licensed product in each country commences on the first commercial sale of the applicable licensed product in theapplicable country and ends on the latest of expiration of specified patent coverage, expiration of specified regulatory exclusivity or ten years following the firstcommercial sale. We or Eisai may terminate the agreement for convenience as to our respective territories, upon 90 days’ prior written notice. The agreement willalso terminate as to our territory if we cease all development and commercialization activities for the United States and specified major countries in Europe and asto Eisai’s territory if Eisai ceases all development and commercialization activities for Japan. The agreement may also be terminated by either party in the event ofan uncured material breach by the other party or by us in the event Eisai, or an affiliate or sublicensee, participates or actively assists in an action or proceedingchallenging or denying the validity of one of our patents. If we terminate the agreement for our convenience, the agreement terminates as a result of our cessationof development and commercialization activities or Eisai terminates the agreement for our uncured material breach, Eisai may elect to have worldwidedevelopment and commercialization rights revert to Eisai, and if Eisai so elects, Eisai will be required to pay us specified royalties on net sales of the licensedproducts and reimburse certain development expenses incurred by us. If Eisai terminates the agreement for its convenience, the agreement terminates as a result ofEisai’s cessation of development and commercialization activities or we terminate the agreement for Eisai’s uncured material breach or Eisai’s, or its affiliate’s orsublicensee’s, participation in, or assistance with, an action or proceeding challenging or denying the validity of one of our patents, Japanese development andcommercialization rights to the licensed products revert to us, and we will be required to pay Eisai specified royalties on net sales of licensed products in Japan.LYSAIn May 2016, we entered into a collaboration agreement with the Lymphoma Academic Research Organization, or LYSARC, to conduct a combination trial oftazemetostat with R-CHOP. LYSARC is the operational arm of LYSA, a premier cooperative group in France dedicated to clinical and translational research forlymphoma. This multi-center Phase 1b/2 study is evaluating tazemetostat in combination with R-CHOP, as a front-line treatment in elderly, high-risk patients withDLBCL and is being sponsored by LYSARC. LYSA is managing the study operations for the trial, and we are recognizing our share of the related expenses asthose costs are incurred over the duration of the trial. The study was initiated in December 2016.GenentechIn June 2016, we entered into a collaboration agreement with Genentech, a member of the Roche Group, to conduct a Phase 1b clinical trial to investigate the anti-cancer effects of tazemetostat and Genentech’s Tecentriq (atezolizumab), when used in combination. The trial will evaluate this combination regimen for thetreatment of patients with relapsed or refractory DLBCL. Under the agreement, each company will supply its respective anti-cancer agent to support the trial andshare equally in the trial costs. Genentech is managing the study operations for the trial, and we are recognizing our share of the related expenses as those costs areincurred over the duration of the trial. The study was initiated in December 2016.Companion DiagnosticsRoche MolecularIn December 2012, Eisai and we entered into an agreement with Roche Molecular under which Eisai and we engaged Roche Molecular to develop a companiondiagnostic to identify patients who possess certain point mutations of EZH2. In October 2013, this agreement was amended to include additional point mutations inEZH2. The $21.5 million of development costs due under the amended agreement with Roche Molecular were the responsibility of Eisai until the execution of ouramended and restated collaboration and license agreement with Eisai in March 2015, at which time we assumed responsibility for the remaining development costsdue 23Table of Contentsunder the agreement. In December of 2015, we entered into the second amendment to the companion diagnostic agreement with Roche Molecular. As ofDecember 31, 2016, we are responsible for the remaining development costs of $12.0 million due under the second amendment as of December 31, 2015. Weexpect the remaining development costs under the second amendment to be paid and incurred through 2019.Under our agreement with Roche Molecular, Roche Molecular is obligated to use commercially reasonable efforts to develop and to make commercially availablethe companion diagnostic. Roche Molecular has exclusive rights to commercialize the companion diagnostic.Our agreement with Roche Molecular will expire when we are no longer developing or commercializing tazemetostat. We may terminate the agreement by givingRoche Molecular 90 days’ written notice if we discontinue development and commercialization of tazemetostat or determine, in conjunction with Roche Molecular,that the companion diagnostic is not needed for use with tazemetostat. Either we or Roche Molecular may also terminate the agreement in the event of a materialbreach by the other party, in the event of material changes in circumstances that are contrary to key assumptions specified in the agreement or in the event ofspecified bankruptcy or similar circumstances. Under specified termination circumstances, Roche Molecular may become entitled to specified termination fees.Intellectual PropertyWe strive to protect the proprietary compounds and technologies that we believe are important to our business, including seeking and maintaining patent protectionintended to cover the composition of matter of our product candidates, their methods of use, related technologies, diagnostics and other inventions. Our patentportfolio is currently composed of over 200 issued patents and allowed patent applications and over 400 pending patent applications in the major pharmaceuticalmarkets, that we own as well as license from other parties. In addition to patent protection, we also rely on trade secrets and careful monitoring of our proprietaryinformation to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology,inventions and know-how related to our business, defend and enforce our patents, maintain our licenses to use intellectual property owned by third parties, preservethe confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely onknow-how, continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the field of HMTs.We plan to continue to expand our intellectual property estate by filing patent applications directed to dosage forms, methods of treatment and additional CMP andHMT inhibitor compounds and their derivatives. Specifically, we seek patent protection in the United States and internationally for novel compositions of mattercovering the compounds, the chemistries and processes for manufacturing these compounds and the use of these compounds in a variety of therapies.The patent portfolios for our most advanced programs are summarized below.EZH2. Our EZH2 patent portfolio includes U.S. Patent No. 8,410,088 covering the composition of matter of tazemetostat. This patent issued on April 2, 2013 andis expected to expire in 2032. Our EZH2 portfolio also includes 19 additional U.S. patents and more than 140 foreign patents, expected to expire between 2031 and2034, not including extensions. The claims of these patents cover the composition of matter of EZH2 inhibitor compounds and various methods of their making anduse. Patent applications in the same families as these patents are pending in a variety of worldwide jurisdictions, including the United States. The EZH2 programportfolio encompasses more than 35 patent families with pending patent applications relating to compositions of matter and methods of making and use of EZH2inhibitors. The patent families in this portfolio are in various stages of prosecution and include patent applications filed in a variety of worldwide jurisdictions,including the 24Table of ContentsUnited States; Patent Cooperation Treaty (PCT) applications that are eligible for filing in most worldwide jurisdictions, including the United States; and U.S.provisional applications that may be used to establish non-provisional U.S. applications, PCT applications and other national filings worldwide. Our patentapplications in the EZH2 portfolio, if issued, would be expected to expire between 2031 and 2036.DOT1L. Our DOT1L patent portfolio includes U.S. Patent No. 8,580,762 covering the composition of matter of pinometostat. The patent issued on November 12,2013 and is expected to expire in 2032. Our DOT1L portfolio also includes seven additional U.S. patents and more than 30 foreign patents, expected to expirebetween 2031 and 2034, not including extensions. The DOT1L program portfolio encompasses more than fifteen patent families relating to compositions of matterof DOT1L inhibitor compounds and methods of their making and use. The patent families in this portfolio are in various stages of prosecution and include patentfamilies with applications filed in a variety of worldwide jurisdictions including the United States; and PCT applications that are eligible for filing in mostworldwide jurisdictions, including the United States. These patents and patent applications are wholly owned by us. Our patent applications in the DOT1Lportfolio, if issued, would be expected to expire between 2031 and 2036.Other Targets . We also have patent portfolios directed to targets other than EZH2 and DOT1L, including the HMT targets PRMT1, PRMT3, CARM1 (PRMT4),PRMT5, PRMT6, PRMT8, SMYD2 and SMYD3. These patent portfolios have more than 30 patent families directed to various product candidates withapplications filed in the United States, PCT applications that are eligible for filing in most worldwide jurisdictions, including the United States, and U.S.provisional applications that may be used to establish non-provisional U.S. applications, PCT applications and other national filings worldwide. Patents, if issued inthese portfolios are expected to expire between 2033 and 2036. For example, we have eight U.S. and a foreign patent that cover PRMT5 inhibitors and methods oftheir making and use. These patents are expected to expire in 2033, not including extensions.The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patentterm is 20 years from the earliest date of filing a non-provisional patent application.In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent termrestoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up tofive years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patentextension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approveddrug may be extended. Similar provisions are available in Europe and other non-United States jurisdictions to extend the term of a patent that covers an approveddrug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents covering thoseproducts. We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that theapplicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted,the length of such extensions.We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietary information and tradesecrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietaryinformation and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our tradesecrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentialityagreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning ourbusiness or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and notdisclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all 25Table of Contentsinventions conceived by the individual, and which are related to our current or planned business or research and development or made during normal workinghours, on our premises or using our equipment or proprietary information, are our exclusive property.ManufacturingWe do not have any manufacturing facilities and currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates forpreclinical and clinical testing, as well as for commercial manufacture if our product candidates receive marketing approval. Prior to the execution of the amendedand restated collaboration and license agreement with Eisai, Eisai manufactured tazemetostat for preclinical and clinical development. Upon execution of theamended and restated collaboration and license agreement, as part of the transition plan, Eisai agreed to sell us its existing inventories and manufacture additionaltazemetostat clinical supplies and the active pharmaceutical ingredient, or API. We took receipt of these API and clinical supplies from Eisai during the year endedDecember 31, 2015. We have entered into clinical supply agreements with three contract manufacturers, one to produce tazemetostat API and two to producetazemetostat tablets. We intend to identify and qualify additional manufacturers to provide API, tablets and a pediatric formulation as part of our ongoingmanufacturing efforts for tazemetostat. To date, we have obtained materials for pinometostat from multiple third party manufacturers.All of our drug candidates are small molecules and are manufactured in reliable and reproducible synthetic processes from readily available starting materials. Thechemistry is amenable to scale up and does not require unusual equipment in the manufacturing process. We expect to continue to develop drug candidates that canbe produced cost-effectively at contract manufacturing facilities.We generally expect to rely on third parties for the manufacture of any companion diagnostics. We are currently collaborating with Roche Molecular for adiagnostic for use with tazemetostat, and we expect to rely on Roche Molecular for the manufacture of the diagnostic it is developing. We may enter into similaragreements for the manufacture of other companion diagnostics.CommercializationWe have recently begun to establish a commercial infrastructure in preparation for a potential future launch of tazemetostat. We generally expect to retaincommercial rights in the United States for our product candidates for which we receive marketing approvals and have done so to date other than for the productcandidates under our GSK collaboration and two of the three targets under our Celgene collaboration.Subject to receiving marketing approvals, we expect to commence commercialization activities by building an organization in the United States to sell ourproducts. We believe that such an organization will be able to address the oncologists who are the key specialists in treating the patient populations for which ourclinical stage product candidates are being developed. Outside the United States, we may choose to enter into distribution and other marketing arrangements withthird parties for any of our product candidates that obtain marketing approval, or may choose to commercialize our products in certain markets, depending uponmany factors, including the target market size, availability of reimbursement, and our financial resources at the time.We expect that our collaborators for any companion diagnostics we may develop in the future for use with our therapeutic products will hold the commercial rightsto these diagnostic products, as is the case for our collaboration with Roche Molecular. We expect to coordinate closely with any diagnostic collaborators inconnection with the marketing and sale of any related therapeutic products.CompetitionThe biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietaryproducts. While we believe that our technology, knowledge, 26Table of Contentsexperience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including majorpharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private researchinstitutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may becomeavailable in the future.There are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology companies.Companies that are developing new epigenetic treatments for cancer that target HMTs include GSK, Novartis AG, Pfizer, Inc., Merck & Co., Inc., Daiichi SankyoCompany Limited, Takeda Pharmaceutical Company Limited, AbbVie Inc., Bayer Schering Pharma AG and Constellation Pharmaceuticals. In addition, manycompanies are developing cancer therapeutics that work by targeting epigenetic mechanisms other than HMTs, and some including Celgene and Eisai, are nowmarketing cancer treatments that work by targeting epigenetic mechanisms other than HMTs.Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertisein research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than wedo. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smallernumber of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements withlarge and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel andestablishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.The key competitive factors affecting the success of all of our therapeutic product candidates, if approved, are likely to be their efficacy, safety, convenience, price,the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic competition and the availability of reimbursement fromgovernment and other third party payors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer orless severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or otherregulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong marketposition before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third party payors seeking toencourage the use of generic products. Generic products that broadly address these indications are currently on the market for the indications that we are pursuing,and additional products are expected to become available on a generic basis over the coming years. If our product candidates achieve marketing approval, weexpect that they will be priced at a significant premium over competitive generic products.The most common methods of treating patients with cancer are surgery, radiation and drug therapy. There are a variety of available drug therapies marketed forcancer. In many cases, these drugs are administered in combination to enhance efficacy. While our product candidates may compete with many existing drugs andother therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our product candidates will not be competitive withthem. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of theseapproved drugs are well established therapies and are widely accepted by physicians, patients and third party payors.In addition to currently marketed therapies, there are also a number of products in late stage clinical development to treat cancer. These products in developmentmay provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies. As a result, they may provide significantcompetition for any of our product candidates for which we obtain marketing approval. 27Table of ContentsIf our lead product candidates are approved for the indications for which we are currently undertaking clinical trials, they will compete with the therapies andcurrently marketed drugs discussed below.Tazemetostat. The most common treatments for DLBCL and FL are chemotherapies, usually combined with the monoclonal antibody Rituxan, or more recently, inthe case of FL, Gazyva, which is a next-generation antibody that acts against the same target as Rituxan. While Rituxan and number of other widely used anti-cancer agents are labeled either broadly for NHL or more narrowly for DLBCL or FL, no therapies are approved specifically for the treatment of tumors associatedwith EZH2 activating mutations. Additionally, no therapies are approved specifically for the treatment of INI1- and SMARCA4-negative tumors. Several tumorhistologies are represented in this molecularly defined group, such as epithelioid sarcoma, MRT, and MRTO. Epithelioid sarcoma is treated with surgical resectionwhen it presents as localized disease. When epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational agentssince there are no approved systemic therapies specifically indicated for this disease. Although there are no approved therapies for MRT, current treatment for thesetumors consists of intensive chemotherapy with or without radiation therapy. MRTO is an aggressive tumor with a poor prognosis that is generally treated withsurgery and platinum-based combination chemotherapy at diagnosis. Mesothelioma is typically treated with cisplatin and pemetrexed chemotherapy in the frontline setting. There are no established salvage treatments for patients with epithelioid sarcoma, MRT, MRTO, or mesothelioma who relapse or who are refractory tofront line treatment.Pinometostat. There are no approved therapies specifically indicated for MLL-r. There are, however, currently approved therapies for acute lymphoblasticleukemias, or ALL and acute myeloblastic leukemias, or AML, in general. The current standard of care differs according to the specific lineage of the leukemia.Patients with AML and ALL typically are treated with intensive multi-agent chemotherapy and high risk patients who enter remission and have a matched donormay receive an allogeneic stem cell transplant.Research and Development ExpensesFor the years ended December 31, 2016, 2015 and 2014, we incurred approximately $91.5 million, $111.2 million, and $75.6 million, respectively, on research anddevelopment activities.Government Regulation and Product ApprovalGovernment authorities in the United States, at the federal, state and local level, and in other countries and foreign jurisdictions, including the European Union,extensively regulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion,distribution, marketing, import and export of pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in theUnited States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time andfinancial resources.United States Government RegulationIn the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. Failure to comply withthe applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to avariety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold,issuance of warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals ofgovernment contracts, restitution, disgorgement or civil or criminal penalties. 28Table of ContentsThe process required by the FDA before a drug may be marketed in the United States generally involves the following: • completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP,regulations; • submission to the FDA of an IND which must become effective before human clinical trials may begin; • approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated; • performance of human clinical trials, including adequate and well-controlled clinical trials, in accordance with good clinical practices, or GCP, toestablish the safety and efficacy of the proposed drug product for each indication; • submission to the FDA of an NDA; • satisfactory completion of an FDA advisory committee review, if applicable; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance withcurrent good manufacturing practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity,strength, quality and purity, as well as satisfactory completion of an FDA inspection of selected clinical sites to determine GCP compliance; • payment of user fees per published Prescription Drug User Fee Act, or PDUFA, guidelines for that year; • FDA review and approval of the NDA; and • compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, orREMS, and the potential requirement to conduct post-approval studies.Preclinical Studies. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potentialsafety and efficacy. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any availableclinical data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND is submitted. An INDautomatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposedclinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinicaltrial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.Clinical Trials. Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators inaccordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in anyclinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safetyand the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part ofthe IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at thatinstitution, and the IRB must continue to oversee the clinical trial while it is being conducted. Information about certain clinical trials must be submitted withinspecific timeframes to the National Institutes of Health, or NIH, for public dissemination on the ClinicalTrials.gov website.Human clinical trials are typically conducted in four sequential phases, which may overlap or be combined. In Phase 1, the drug is initially introduced into healthyhuman subjects or patients with the target disease or 29Table of Contentscondition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an initial indication of its effectiveness. InPhase 2, the drug typically is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacyof the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. In Phase 3, the drug is administered to an expanded patientpopulation, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy andsafety of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product. InPhase 4, post-approval studies may be conducted to gain additional experience from the treatment of patients in the intended therapeutic indication.Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase1, Phase 2, Phase 3 and Phase 4 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor maysuspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’srequirements or if the drug has been associated with unexpected serious harm to patients.In general, the FDA accepts foreign safety and efficacy studies that were not conducted under an IND provided that they are well designed, well conducted,performed by qualified investigators, and conducted in accordance with ethical principles acceptable to the world community. The conduct of these studies mustmeet at least minimum standards for assuring human subject protection. Therefore, for studies submitted in support of an NDA that were conducted outside theUnited States and not under an IND, the agency requires demonstration that such studies were conducted in accordance with Good Clinical Practices.Marketing Approval. Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailedinformation relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDArequesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Forthe federal fiscal year 2017, the application user fee is $2.0 million. The sponsor of an approved NDA is also subject to annual product and establishment user fees,which for fiscal year 2017 are $98,000 per product and $512,000 per establishment. Under PDUFA guidelines that are currently in effect, the FDA has agreed tocertain performance goals regarding the timing of its review of an application.In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data that are adequate to assess the safety andeffectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatricsubpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission ofsome or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Unless otherwiserequired by regulation, the pediatric data requirements do not apply to products with orphan designation.The FDA also may require submission of a REMS plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides,physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries or other riskminimization tools.The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they aresufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the applicationmust be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submissionis accepted for filing, the FDA begins an in-depth substantive 30Table of Contentsreview. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured,processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.The FDA typically refers a question regarding a novel drug to an external advisory committee. An advisory committee is a panel of independent experts, includingclinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under whatconditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an applicationunless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of theproduct within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliancewith GCP.The testing and approval process for an NDA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtainedfrom preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatoryapproval. The FDA may not grant approval of an NDA on a timely basis, or at all.After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding themanufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response lettergenerally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinicaltesting in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the applicationdoes not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approvalletter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions beincluded in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess adrug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, includingdistribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. TheFDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types ofchanges to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirementsand FDA review and approval.Special FDA Expedited Review and Approval Programs. The FDA has various programs, including Fast Track designation, accelerated approval, priority reviewand breakthrough designation, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for thetreatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is toprovide important new drugs to patients earlier than under standard FDA review procedures.To be eligible for a Fast Track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or lifethreatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medicalneed if it will 31Table of Contentsprovide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. For Fast Trackproducts, sponsors may have greater interactions with the FDA regarding drug development and may submit sections of a Fast Track product’s NDA before theapplication is complete.The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. Apriority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFAguidelines. These six- and ten-month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, whichtypically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for Fast Trackdesignation are also likely to be considered appropriate to receive a priority review.In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit overexisting treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drugproduct has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier thanirreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into accountthe severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsorof a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or otherclinical endpoint, and the drug may be subject to accelerated withdrawal procedures.Moreover, under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, a sponsor can requestdesignation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one ormore other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantialimprovement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings andproviding advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decidethat the time period for FDA review or approval will not be shortened.FDA Regulation of Companion Diagnostics. Our drug products may rely upon in vitro companion diagnostics for use in selecting the patients that we believe willrespond to our cancer therapeutics. FDA officials have issued guidance that addresses issues critical to developing in vitro companion diagnostics, such as when theFDA will require that the diagnostic and the drug be approved simultaneously. The guidance issued in August 2014 states that if safe and effective use of atherapeutic product depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of the diagnostic at the same time that the FDAapproves the therapeutic product.The FDA previously has required in vitro companion diagnostics intended to select the patients who will respond to the cancer treatment to obtain Pre-MarketApproval, or PMA, simultaneously with approval of the drug. Based on the guidance, and the FDA’s past treatment of companion diagnostics, we believe that theFDA will require PMA approval of one or more in vitro companion diagnostics to identify patient populations suitable for our cancer therapies. The review of thesein vitro companion diagnostics in conjunction with the review of our cancer treatments involves coordination of review by the FDA’s Center for Drug Evaluationand Research and by the FDA’s Center for Devices and Radiological Health Office of In Vitro Diagnostics Device Evaluation and Safety. 32Table of ContentsThe PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. Itinvolves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety andeffectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications aresubject to an application fee, which exceeds $250,000 for most PMAs.Post-Approval Requirements. Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion andreporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claimsare subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at whichsuch products are manufactured, as well as new application fees for supplemental applications with clinical data.The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing,including Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments withthe FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements.Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also requireinvestigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third partymanufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production andquality control to maintain cGMP compliance.Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occurafter the product reaches the market.Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes,or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequencesinclude, among other things: • restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; • fines, warning letters or holds on post-approval clinical trials; • refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; • product seizure or detention, or refusal to permit the import or export of products; or • injunctions or the imposition of civil or criminal penalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Although physicians, in the practice ofmedicine, may prescribe approved drugs for unapproved indications, pharmaceutical companies generally are required to promote their drug products only for theapproved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulationsprohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. 33Table of ContentsIn addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, as well as the Drug Supply ChainSecurity Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimumstandards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescriptionpharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and otherillegitimate products from the market.Federal and State Fraud and Abuse and Data Privacy and Security Laws and Regulations. In addition to FDA restrictions on marketing of pharmaceuticalproducts, federal and state fraud and abuse laws restrict business practices in the biopharmaceutical industry. These laws include anti-kickback and false claimslaws and regulations as well as data privacy and security laws and regulations.The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or inreturn for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any item or service reimbursable under Medicare,Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute hasbeen interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other.Although there are a number of statutory exemptions and regulatory safe harbors protecting some common activities from prosecution, the exemptions and safeharbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may besubject to scrutiny if they do not qualify for an exemption or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any onepurpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.The reach of the Anti-Kickback Statute was also broadened by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care andEducation Reconciliation Act of 2010, or collectively PPACA, which, among other things, amended the intent requirement of the federal Anti-Kickback Statutesuch that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. Inaddition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statuteconstitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil monetary penalties statute, which imposes penalties against any personwho is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or servicethat was not provided as claimed or is false or fraudulent. PPACA also created new federal requirements for reporting, by applicable manufacturers of covereddrugs, payments and other transfers of value to physicians and teaching hospitals.The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government orknowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claimincludes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal criminal statutes that prohibitknowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third party payors and knowingly and willfully falsifying,concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment forhealthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed underMedicaid and other state programs, or, in several states, apply regardless of the payor. 34Table of ContentsWe may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, asamended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, imposes specified requirements relating tothe privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standardsdirectly applicable to “business associates,” defined as independent contractors or agents of covered entities that receive or obtain protected health information inconnection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against coveredentities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federalcourts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacyand security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thuscomplicating compliance efforts.In addition, federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and Affordable Care Act, asamended by the Health Care Education Reconciliation Act, or the Affordable Care Act, require certain manufacturers of drugs, devices, biologics and medicalsupplies to report annually to the Centers for Medicare & Medicaid Services, within the United States Department of Health and Human Services, informationrelated to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held byphysicians and their immediate family members. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntarycompliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to reportinformation related to payments to physicians and other health care providers or marketing expendituresTo the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance,applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs andreporting of payments or transfers of value to healthcare professionals.Coverage and Reimbursement. The commercial success of our product candidates and our ability to commercialize any approved product candidates successfullywill depend in part on the extent to which governmental authorities, private health insurers and other third party payors provide coverage for and establish adequatereimbursement levels for our therapeutic product candidates and related companion diagnostics. Government health administration authorities, private healthinsurers and other organizations generally decide which drugs they will pay for and establish reimbursement levels for healthcare. In particular, in theUnited States, private health insurers and other third party payors often provide reimbursement for products and services based on the level at which thegovernment (through the Medicare or Medicaid programs) provides reimbursement for such treatments. In the United States, the European Union and otherpotentially significant markets for our product candidates, government authorities and third party payors are increasingly attempting to limit or regulate the price ofmedical products and services, particularly for new and innovative products and therapies, which often has resulted in average selling prices lower than they wouldotherwise be. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in theEuropean Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results ofoperations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related toMedicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.Third party payors are increasingly imposing additional requirements and restrictions on coverage and limiting reimbursement levels for medical products. Forexample, federal and state governments reimburse covered prescription drugs at varying rates generally below average wholesale price. These restrictions andlimitations influence the purchase of healthcare services and products. Legislative proposals to reform healthcare or reduce 35Table of Contentscosts under government insurance programs may result in lower reimbursement for our products and product candidates or exclusion of our products and productcandidates from coverage. The cost containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduceour revenues from the sale of any approved product candidates. We cannot provide any assurances that we will be able to obtain and maintain third party coverageor adequate reimbursement for our product candidates in whole or in part.Impact of Healthcare Reform on Coverage, Reimbursement, and Pricing. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or theMMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries mayenroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Part D plans include both standalone prescriptiondrug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is notstandardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formularythat identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeuticcategory and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug planmust be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demandfor any products for which we receive marketing approval. However, any negotiated prices for our future products covered by a Part D prescription drug plan willlikely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors oftenfollow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from Medicare Part D mayresult in a similar reduction in payments from non-governmental payors.The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for thesame illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and theNational Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of thecomparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will haveon the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectivenessresearch demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third party payors do not consider ourproduct candidates to be cost-effective compared to other available therapies, they may not cover our product candidates, once approved, as a benefit under theirplans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.The United States and some foreign jurisdictions are considering enacting or have enacted a number of additional legislative and regulatory proposals to change thehealthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there issignificant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access. In theUnited States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including,most recently, PPACA, which became law in March 2010 and substantially changed the way healthcare is financed by both governmental and private insurers.Among the provisions of the Affordable Care Act of importance to potential drug candidates are: • an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned amongthese entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain productsapproved exclusively for orphan indications; 36Table of Contents • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals withincome at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; • expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and genericdrugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatientprescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare Advantage plans; • addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that areinhaled, infused, instilled, implanted or injected; • expanded the types of entities eligible for the 340B drug discount program; • established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% point-of-sale-discount off the negotiatedprice of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient drugs to becovered under Medicare Part D; • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, alongwith funding for such research; • the Independent Payment Advisory Board, or IPAB, which has authority to recommend certain changes to the Medicare program to reduceexpenditures by the program that could result in reduced payments for prescription drugs. However, the IPAB implementation has been not beenclearly defined. PPACA provided that under certain circumstances, IPAB recommendations will become law unless Congress enacts legislation thatwill achieve the same or greater Medicare cost savings; and • established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicareand Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicareand Medicaid Innovation from 2011 to 2019.Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August 2011, theBudget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, taskedwith recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering thelegislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscalyear, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, the AmericanTaxpayer Relief Act of 2012 became law, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centersand cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.There have been recent public announcements by members of the U.S. Congress and the new presidential administration regarding their plans to repeal and replacethe PPACA. However, it remains unclear how a repeal or replacement of current healthcare programs might affect our ability to sell our products and the prices wemay obtain for any of our approved products.Exclusivity and Approval of Competing ProductsPatent Term Restoration and Extension. A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act,which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration periodgranted is typically one-half the time between the effective date of an IND and the submission date of a NDA, plus the time between the submission date of a NDAand the ultimate approval date. Patent term restoration cannot be used to 37Table of Contentsextend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligiblefor the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs forwhich approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent termextension or restoration in consultation with the FDA.Hatch-Waxman Patent Exclusivity. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that coverthe applicant’s product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in theFDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn,be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA, or 505(b)(2) NDA.Generally, an ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths, dosage form and route of administrationas the listed drug and has been shown to be bioequivalent through in vitro or in vivo testing or otherwise to the listed drug. ANDA applicants are not required toconduct or submit results of preclinical or clinical tests to prove the safety or effectiveness of their drug product, other than the requirement for bioequivalencetesting. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists underprescriptions written for the original listed drug.A 505(b)(2) application applies to a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon bythe applicant for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or usefrom the person by or for whom the investigations were conducted.” As with an ANDA, Section 505(b)(2) authorizes the FDA to approve an NDA based on safetyand effectiveness data that were not developed by the applicant. 505(b)(2) NDAs generally are submitted for changes to a previously approved drug product, suchas a new dosage form or indication.The ANDA or 505(b)(2) NDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book, exceptfor patents covering methods of use for which the ANDA applicant is not seeking approval. Specifically, the applicant must certify with respect to each patent that: • the required patent information has not been filed; • the listed patent has expired; • the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or • the listed patent is invalid, unenforceable, or will not be infringed by the new product.Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except when the ANDA or 505(b)(2) NDA applicant challenges alisted drug. A certification that the proposed product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceableis called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, theANDA or 505(b)(2) NDA application will not be approved until all the listed patents claiming the referenced product have expired.If the ANDA or 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IVcertification to the NDA and patent holders once the application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patentinfringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of noticeof the Paragraph IV certification automatically prevents the FDA from 38Table of Contentsapproving the ANDA or 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case thatis favorable to the ANDA applicant.Hatch—Waxman Non-Patent Exclusivity. Market and data exclusivity provisions under the FDCA also can delay the submission or the approval of ANDAs and505(b)(2) NDAs for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gainapproval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the sameactive moiety, which is the molecule or ion responsible for the activity of the drug substance. During the exclusivity period, the FDA may not accept for review anANDA or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety. However, an ANDA or 505(b)(2) NDA may besubmitted after four years if it contains a certification of patent invalidity or non-infringement.The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinicalinvestigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of theapplication or supplement. Three-year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengthsor dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a generalmatter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain aright of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.Orphan Drug Exclusivity. The Orphan Drug Act provides incentives for the development of drugs intended to treat rare diseases or conditions, which generally arediseases or conditions affecting less than 200,000 individuals annually in the United States. If a sponsor demonstrates that a drug is intended to treat a rare diseaseor condition, the FDA grants orphan drug designation to the product for that use. The benefits of orphan drug designation include research and development taxcredits and exemption from user fees. A drug that is approved for the orphan drug designated indication is granted seven years of orphan drug exclusivity. Duringthat period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notablywhen the later product is shown to be clinically superior to the product with exclusivity. We intend to seek orphan drug designation and exclusivity for our productswhenever it is available. We have been granted orphan drug designation in the United States and the European Union for pinometostat, and orphan drug designationin the United States for tazemetostat for the treatment of malignant rhabdoid tumors.Pediatric Exclusivity. Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment ofan additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan drug exclusivity periodsdescribed above. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA forsuch data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to theFDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by FDA within the statutory time limits,whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover the drug are extended by six months. This is not a patent termextension, but it effectively extends the regulatory period during which the FDA cannot approve an ANDA or 505(b)(2) application owing to regulatory exclusivityor listed patents. When any of our products is approved, we anticipate seeking pediatric exclusivity when it is appropriate. 39Table of ContentsEuropean Union Drug Approval ProcessIn order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countriesregarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products.Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authorities of foreigncountries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and caninvolve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from and belonger than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay inobtaining regulatory approval in one country may negatively impact the regulatory process in others.Clinical Trial Approval in the EU. Pursuant to the currently applicable Clinical Trials Directives, an applicant must obtain approval from the competent nationalauthority of the EU Member State in which the clinical trial is to be conducted. If the clinical trial is conducted in different EU Member States, the competentauthorities in each of these EU Member States must provide their approval for the conduct of the clinical trial. Furthermore, the applicant may only start a clinicaltrial at a specific study site after the competent ethics committee has issued a favorable opinion. In April 2014, the EU adopted a new Clinical Trials Regulation,which is set to replace the current Clinical Trials Directive. The new Clinical Trials Regulation will be directly applicable to and binding in all 28 EU MemberStates without the need for any national implementing legislation, and will become applicable no earlier than 28 May 2016. Under the new coordinated procedurefor the approval of clinical trials, the sponsor of a clinical trial will be required to submit a single application for approval of a clinical trial to a reporting EUMember State (RMS) through an EU Portal. The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EUMember State or in more than one EU Member State. The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting for clinicaltrials.Marketing Authorization. To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications,or MAAs, either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is validfor all European Union member states. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, productsdesignated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, and optional for those productsthat are highly innovative or for which a centralized process is in the interest of patients. Under the centralized procedure in the European Union, the maximumtimeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant inresponse to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use, or the CHMP. Accelerated evaluationmight be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulativecriteria: the seriousness of the disease, such as heavy disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternativetherapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the European Medicines Agency, or EMA, ensures that the opinion of theCHMP is given within 150 days.The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one memberstate, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related materials, including a draft summaryof product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state preparesa draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’sassessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve theassessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the EuropeanCommission, whose 40Table of Contentsdecision is binding on all member states. For the EMA, a Pediatric Investigation Plan, or a request for waiver or deferral, is required for submission prior tosubmitting an MAA for use for drugs in pediatric populations.Data and Market Exclusivity. In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and anadditional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from assessing a generic(abbreviated) application for eight years, after which generic marketing authorization can be submitted but not approved for two years. The overall ten-year periodwill be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for oneor more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparisonwith existing therapies. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity,another company nevertheless could also market another version of the drug if such company can complete a full MAA with a complete human clinical trialdatabase and obtain marketing approval of its product.Orphan Drug Exclusivity. The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the European Union. In addition, orphan drug designation can begranted if the drug is intended for a life threatening, seriously debilitating or serious and chronic condition in the European Union and without incentives it isunlikely that sales of the drug in the European Union would be sufficient to justify developing the drug. Orphan drug designation is only available if there is noother satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drugwill be of significant benefit to patients. Orphan drug designation provides opportunities for free protocol assistance, fee reductions for access to the centralizedregulatory procedures before and during the first year after marketing authorization and 10 years of market exclusivity following drug approval. Fee reductions arenot limited to the first year after authorization for small and medium enterprises. The exclusivity period may be reduced to six years if the designation criteria areno longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.EmployeesAs of March 1, 2017, we had 112 full-time employees, 76 of whom were primarily engaged in research and development activities and 71 of whom have an M.D.or Ph.D. degree.Executive Officers of the CompanyThe following table sets forth the name, age and position of each of our executive officers as of March 1, 2017. Name Age PositionRobert B. Bazemore 49 President, Chief Executive Officer and DirectorAndrew E. Singer 46 Executive Vice President of Finance and Administration, Chief Financial Officer and TreasurerMatthew E. Ros 50 Chief Operating OfficerSusan E. Graf 44 Chief Business OfficerRobert A. Copeland, Ph.D. 60 President of Research and Chief Scientific OfficerPeter T.C. Ho, M.D., Ph.D. 55 Chief Development OfficerRobert B. Bazemore has served as a director and our President and Chief Executive Officer since joining us in September 2015. Prior to joining us, fromSeptember 2014 to July 2015, Mr. Bazemore served as the Chief Operating Officer of Synageva BioPharma Corp., a biopharmaceutical company developingtherapeutic products for rare disorders. Prior to joining Synageva, Mr. Bazemore served in increasing levels of responsibility at Johnson & Johnson, a healthcarecompany, including Vice President, Centocor Ortho Biotech Sales & Marketing 41Table of Contentsfrom 2008 to 2010, President of Janssen Biotech from March 2010 to October 2013 and Vice President of Global Surgery at Ethicon from October 2013 toSeptember 2014. Prior to Johnson & Johnson, Mr. Bazemore worked at Merck & Co., Inc. for eleven years, where he served in a variety of roles in medical affairs,sales and marketing. Mr. Bazemore is a director of Ardelyx, Inc., a biopharmaceutical company. He received a B.S. in biochemistry from the University ofGeorgia.Andrew E. Singer has served as our Executive Vice President of Finance and Administration, Chief Financial Officer and Treasurer since February 2015. Prior tojoining us, from 2004 to January 2015, Mr. Singer served in increasing levels of responsibility in the Health Care Investment Banking Group at RBC CapitalMarkets Corporation, or RBC, an investment bank, serving as a Managing Director from 2007 to 2015. Prior to joining RBC, Mr. Singer worked at Petkevitch &Company, co-founded MVC Capital, and worked at Robertson, Stephens & Co, The Shansby Group and The Blackstone Group. Mr. Singer serves on the board ofdirectors of the J.F. Kapnek Trust. Mr. Singer received a B.A. from Yale University and an M.B.A. from Harvard University Graduate School of Business.Matthew E. Ros has served as our Chief Operating Officer since May 2016. Prior to joining us, from September 2010 to May 2016, Mr. Ros served in increasinglevels of responsibility at Sanofi, a multinational pharmaceutical company, most recently as Chief Operating Officer/Global Head of the Oncology Business unitfrom December 2014 to May 2016. Prior to that role, Mr. Ros served in the rare disease business of Genzyme, a Sanofi company, where he served as VicePresident and Franchise Head of its Pompe disease unit from September 2012 to December 2014. From October 2007 to June 2010, Mr. Ros served at ARIADPharmaceuticals, Inc., a global oncology company, most recently as Senior Vice President, Commercial Operations. He started his pharmaceutical career in Bristol-Myers Squibb’s Oncology Division, serving in roles with increasing responsibility from 1990-2007. He received a B.S. from the State University of New York,College at Plattsburgh and completed the Executive Education Program in Finance and Accounting for the Non-Financial Manager at Wharton School of theUniversity of Pennsylvania.Susan E. Graf has served as our Chief Business Officer since April 2016. Prior to joining us, from May 2013 to March 2015, Ms. Graf served as the VicePresident, Corporate Development and Strategy for NPS Pharma before it was acquired by Shire in 2015. Prior to joining NPS Pharma, Ms. Graf spent nearly18years at Roche in a number of leadership and executive positions, including Global Head, Commercial Assessment and Due Diligence for RochePartnering. Ms. Graf received a Bachelor of Pharmacy degree from Purdue University and an M.B.A. from the Stern School of Business at New York University.Robert A. Copeland, Ph.D. has served as our President of Research and Chief Scientific Officer since January 2015 and previously served as our Executive VicePresident and Chief Scientific Officer from September 2008 to January 2015. Prior to joining us, from January 2003 to September 2008, Dr. Copeland was VicePresident, Cancer Biology, Oncology Center of Excellence in Drug Discovery, at GSK. Before joining GSK, Dr. Copeland held scientific staff positions at MerckResearch Laboratories of Merck and Bristol-Myers Squibb Company, a biopharmaceutical company, and a faculty position at the University of Chicago PritzkerSchool of Medicine. Dr. Copeland received a B.S. in chemistry from Seton Hall University, a Ph.D. in chemistry from Princeton University and did postdoctoralstudies as the Chaim Weizmann Fellow at the California Institute of Technology.Peter T.C. Ho, M.D., Ph.D. has served as our Chief Development Officer since September 2014. Prior to joining us, from February 2013 to September 2014,Dr. Ho served as Chief Executive Officer of Metastagen Inc., a pharmaceutical preparation company that he co-founded. Prior to that, Dr. Ho served as President ofBeiGene Ltd., a biopharmaceutical company that he co-founded, from October 2010 to December 2012, as Vice President of Oncology Development at Johnson &Johnson from September 2008 to September 2010 and, prior to that, as Senior Vice President of the Oncology Center of Excellence for Drug Development at GSK.Dr. Ho is a board-certified pediatric hematologist/oncologist and was formerly a fellow at the Dana-Farber Cancer Institute, the National Cancer Center Institute, orNCI, and the FDA. He received a B.A. in biology from the Johns Hopkins University and an M.D. and Ph.D. (pharmacology) from the Yale University School ofMedicine. 42Table of ContentsOur Corporate InformationWe were incorporated under the laws of the state of Delaware on November 1, 2007 under the name Epizyme, Inc. Our principal executive offices are located at400 Technology Square, Cambridge, Massachusetts 02139. Our telephone number is (617) 229-5872, and our website is located at www.epizyme.com. Referencesto our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Annual Report on Form10-K.Available InformationOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge on our website located at www.epizyme.com as soon asreasonably practicable after they are electronically filed with or furnished to the SEC. These reports are also available at the SEC’s Internet website atwww.sec.gov. The public may also read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C.20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the Audit Committee, Compensation Committee andNominating and Corporate Governance Committee are posted on our website, www.epizyme.com, under “Investor Center” and are available in print to any personwho requests copies by contacting Epizyme by calling (617) 229-5872 or by writing to Epizyme, Inc., 400 Technology Square, Cambridge, Massachusetts 02139.Item 1A. Risk FactorsCareful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report on Form 10-K and in otherdocuments that we file with the SEC, in evaluating our company and our business. Investing in our common stock involves a high degree of risk. If any of thefollowing risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected.The risks described below are not intended to be exhaustive and are not the only risks facing our company. New risk factors can emerge from time to time, and it isnot possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations.Risks Related to the Discovery and Development of Our Product CandidatesOur research and development is focused on the creation of novel epigenetic therapies for patients with cancer and other diseases, which is a rapidly evolvingarea of science, and the approach we are taking to discover and develop drugs is novel and may never lead to marketable products.The discovery of novel epigenetic therapies for patients with cancer and other diseases is an emerging field, and the scientific discoveries that form the basis for ourefforts to discover and develop product candidates are relatively new. The scientific evidence to support the feasibility of developing product candidates based onthese discoveries is both preliminary and limited. Although epigenetic regulation of gene expression plays an essential role in biological function, few drugspremised on epigenetics have been discovered. Moreover, those drugs based on an epigenetic mechanism that have received marketing approval are in differenttarget classes than the CMPs where our research and development is principally focused. Although preclinical studies suggest that genetic alterations can result inchanges to the activity of CMPs making them oncogenic, to date no company has translated these biological observations into systematic drug discovery that hasyielded a drug that has received marketing approval. We believe that our first three HMT inhibitors in the clinic are all the first molecules against these targets toenter clinical development. Therefore, we do not know if our approach of inhibiting HMTs or other CMPs to treat patients with cancer and other diseases will besuccessful. 43Table of ContentsOur development efforts are ongoing and we have only two product candidates in clinical trials that we are developing, and one product candidate in clinicaltrials that has been licensed to GSK. All of our other product candidates are still in preclinical development. If we are unable to commercialize our productcandidates or experience significant delays in doing so, our business will be materially harmed.Our development efforts are ongoing and we have only two product candidates in clinical trials that we are developing, tazemetostat and pinometostat. In addition,GSK has initiated a Phase 1 clinical trial for a PRMT5 inhibitor that it has licensed from us. All of our other product candidates are still in preclinical development.We have invested substantially all our efforts and financial resources in the identification and preclinical and clinical development of inhibitors of HMTs and otherCMPs. Our ability to generate product revenues when anticipated or at all will depend heavily on the successful development and eventual commercialization ofour product candidates. The success of our product candidates will depend on several factors, including the following: • successful completion of preclinical studies and clinical trials; • receipt of marketing approvals from applicable regulatory authorities; • obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; • making arrangements with third party manufacturers for, or establishing, commercial manufacturing capabilities; • launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; • acceptance of the products, if and when approved, by patients, the medical community and third party payors; • effectively competing with other therapies; • obtaining and maintaining healthcare coverage and adequate reimbursement; • protecting our rights in our intellectual property portfolio; and • maintaining a continued acceptable safety profile of the products following approval.If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercializeour product candidates, which would materially harm our business.We may not be successful in our efforts to use and expand our proprietary drug discovery platform to build a pipeline of product candidates.A key element of our strategy is to use and expand our proprietary drug discovery platform to build a pipeline of small molecule inhibitors of HMT and other CMPtargets and progress these product candidates through clinical development for the treatment of a variety of different types of cancer and other diseases. Althoughour research and development efforts to date have resulted in a pipeline of programs directed to specific HMT and other CMP targets, we may not be able todevelop product candidates that are safe and effective CMP inhibitors. Even if we are successful in continuing to build our pipeline, the potential productcandidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristicsthat indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not successfully develop andcommercialize product candidates based upon our technological approach, we will not be able to obtain product revenues in future periods, which likely wouldresult in significant harm to our financial position and adversely affect our stock price. 44Table of ContentsClinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays incompleting, or ultimately be unable to complete, the development and commercialization of our product candidates.Three of our product candidates are in clinical development, and our remaining product candidates are in preclinical development. Two of our product candidates inclinical development are being developed by us and the third product candidate is being developed by GSK. The risk of failure for each of our product candidates ishigh. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. Beforeobtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conductextensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.Product candidates are subject to continued preclinical safety studies, which may be conducted concurrent with our clinical testing. The outcomes of these safetystudies may delay the launch of or enrollment in future clinical studies. For example, in the course of our preclinical safety studies of tazemetostat, we observed thedevelopment of lymphoma in Sprague Dawley rats. As a result of these findings, coupled with our limited clinical experience in FL at the time of the INDsubmission in December 2015, we were unable to conduct our Phase 2 trial of tazemetostat in FL patients in the United States until the beginning of 2017. If we areunable to adequately address matters such as this when they arise, we may be unable to conduct clinical trials of our product candidates in the United States or inother countries, our trials may be limited to certain patient populations or our ability to conduct other trials in the United States or in other countries may bedelayed.Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinicaltrials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, andinterim results of a clinical trial do not necessarily predict final results. For example, the CRs that were observed in two patients with MLL-r in the fourth dosecohort of the dose escalation portion of our Phase 1 clinical trial of pinometostat in adults were not achieved by any other patient treated with pinometostat in thePhase 1 clinical trial. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believedtheir product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval orcommercialize our product candidates, including: • regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at aprospective trial site; • we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trialsites; • clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conductadditional clinical trials or abandon product development programs; • preclinical testing may produce results based on which we may decide, or regulators may require us, to conduct additional preclinical studies beforewe proceed with certain clinical trials, limit the scope of our clinical trials, halt ongoing clinical trials or abandon product development programs; • the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may beslower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; • our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; 45Table of Contents • we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are beingexposed to unacceptable health risks; • regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, includingnoncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; • the cost of clinical trials of our product candidates may be greater than we anticipate; • the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient orinadequate; and • our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutionalreview boards to suspend or terminate the trials.If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable tosuccessfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or ifthere are safety concerns, we may: • be delayed in obtaining marketing approval for our product candidates; • not obtain marketing approval at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; • obtain approval with labeling or a risk evaluation mitigation strategy that includes significant use or distribution restrictions or safety warnings; • be subject to additional post-marketing testing requirements; or • have the product removed from the market after obtaining marketing approval.Our product development costs may also increase if we experience delays in clinical testing or in obtaining marketing approvals. We do not know whether any ofour preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical orclinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitorsto bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results ofoperations.If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed orprevented.We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients toparticipate in these trials as required by the FDA or similar regulatory authorities outside of the United States. In particular, because certain of our products may befocused on specific patient populations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. In addition,some of our competitors have ongoing clinical trials for product candidates that may treat the broader patient populations within which our product candidates arebeing developed for the treatment of a subset of identifiable patients with cancer and other diseases, and patients who would otherwise be eligible for our clinicaltrials may instead enroll in clinical trials of our competitors’ product candidates. For instance, our ongoing clinical trials of tazemetostat in adult and pediatricpatients with INI1-negative tumors are targeting rare patient populations. In addition, our Phase 2 clinical trial of tazemetostat in patients with NHL has two armstargeting patients with EZH2 activating mutations in their tumors, one in GCB DLBCL and one in FL. Based on the aggregate scientific literature, we believe thatpatients with these mutations represent approximately 20% of the total GCB DLBCL and FL population in the United States and other major reimbursablemarkets. In any clinical study, the actual percentage of patients enrolled with these 46Table of ContentsEZH2 mutations may vary from the range suggested by the literature. As a result, these arms of the Phase 2 NHL clinical trial have been, and are likely to continueto be, slower to enroll than the other three arms of the Phase 2 NHL clinical trial.Patient enrollment is affected by other factors including: • the severity of the disease under investigation; • the eligibility criteria for the trial in question; • the perceived risks and benefits of the product candidate under trial; • the efforts to facilitate timely enrollment in clinical trials; • the patient referral practices of physicians; • the ability to monitor patients adequately during and after treatment; • the proximity and availability of clinical trial sites for prospective patients; and • the ability to identify specific patient population for molecularly defined study cohort(s).Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinicaltrials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which may cause the value of ourcompany to decline and limit our ability to obtain additional financing.If serious adverse or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit ourdevelopment of some of our product candidates.If our product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected in clinical trials or preclinicaltesting, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or othercharacteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In pharmaceutical development, many compounds that initiallyshow promise in early-stage testing for treating cancer are later found to cause side effects that prevent further development of the compound.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that maybe more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As aresult, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential.Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current andfuture research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accuratelyevaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate throughcollaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development andcommercialization rights to such product candidate. 47Table of ContentsIf we are unable to successfully develop companion diagnostics for our therapeutic product candidates when needed, or experience significant delays in doingso, we may not achieve marketing approval or realize the full commercial potential of our therapeutic product candidates.We may develop companion diagnostics for our therapeutic product candidates to identify patients for our clinical trials who have the specific cancers that we areseeking to treat as appropriate and when existing, available technology may not be sufficient to identify those patients. We do not have experience or capabilities indeveloping or commercializing diagnostics and plan to rely in large part on third parties to perform these functions. For example, we have entered into anagreement with Roche Molecular to develop and commercialize a companion diagnostic for use with tazemetostat for NHL patients with EZH2 activatingmutations. Companion diagnostics are subject to regulation by the FDA and similar regulatory authorities outside of the United States as medical devices andrequire separate regulatory approval prior to commercialization. If any third parties that we engage to assist us are unable to successfully develop companiondiagnostics that are needed for our therapeutic product candidates, or experience delays in doing so: • the development of our therapeutic product candidates may be adversely affected if we are unable to appropriately select patients for enrollment in ourclinical trials; • our therapeutic product candidates may not receive marketing approval if their safe and effective use depends on a companion diagnostic; and • we may not realize the full commercial potential of any therapeutic product candidates that receive marketing approval if, among other reasons, we areunable to appropriately identify patients with the specific genetic alterations targeted by our therapeutic product candidates.If any of these events were to occur, our business would be harmed, possibly materially.Risks Related to Our Financial Position and Need For Additional CapitalWe have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.Since inception, we have incurred significant operating losses. Our net loss was $110.2 million for the year ended December 31, 2016 and $132.4 million for theyear ended December 31, 2015. As of December 31, 2016, we had an accumulated deficit of $353.7 million. To date, we have financed our operations primarilythrough our collaborations, our public offerings, and private placements of our preferred stock. All of our revenue to date has been collaboration revenue. We havedevoted substantially all of our financial resources and efforts to research and development, including clinical and preclinical studies. We are still in the early tomiddle stages of development of our product candidates, and we have not completed development of any drug candidates. We expect to continue to incursignificant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. Weanticipate that our expenses will continue to increase over the next several years as we: • continue our Phase 2 clinical trial of tazemetostat for the treatment of patients with NHL, our Phase 2 clinical trial of tazemetostat for the treatment ofadult patients with certain molecularly defined solid tumors and our Phase 1 clinical trial of tazemetostat for the treatment of pediatric patients withcertain molecularly-defined solid tumors; • continue our Phase 2 clinical trial of tazemetostat in relapsed or refractory patients with mesothelioma characterized by BAP1 loss-of-function; • continue our clinical trials of tazemetostat in combination with R-CHOP in front line elderly patients with DLBCL and in combination withGenentech’s anti-PD-L1 cancer immunotherapy, Tecentriq, in patients with relapsed or refractory DLBCL being conducted by our collaborators; 48Table of Contents • continue our rollover study of tazemetostat in certain patients that have completed prior clinical trial protocols; • continue the new arm of our ongoing Phase 2 NHL trial of tazemetostat in combination with prednisolone in relapsed or refractory patients withDLBCL; • design and conduct a new combination trial of tazemetostat in FL; • pay any milestone payments provided for and achieved under the amended and restated collaboration and license agreement with Eisai; • conduct research and development for Celgene under our amended and restated collaboration and license agreement; • continue the research and development of our other product candidates; • seek to discover and develop additional product candidates; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any productsfor which we may obtain regulatory approval; • maintain, expand and protect our intellectual property portfolio; • hire additional clinical, quality control and scientific personnel; and • add operational, financial and management information systems and personnel, including personnel to support our product development and plannedfuture commercialization efforts.To become and remain profitable, we must succeed in developing, and eventually commercializing, a product or products that generate significant revenue. Theability to achieve this success will require us to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of ourproduct candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and sellingany products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in theseactivities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertaintiesassociated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be ableto achieve profitability. If we are required by the FDA, the European Medicines Agency, or EMA, or other regulatory authorities to perform studies in addition tothose currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses couldincrease.Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remainprofitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and developmentefforts, diversify our product offerings or even continue our operations. A decline in the value of our company could cause our stockholders to lose all or part oftheir investment in our company.We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our productdevelopment programs or commercialization efforts.We expect our expenses to increase in connection with our ongoing activities, particularly to fund our tazemetostat development program; make any milestonepayments provided for and achieved under the amended and restated collaboration and license agreement with Eisai; continue research for Celgene under ouramended and restated collaboration and license agreement; and continue research and development and initiate additional 49Table of Contentsclinical trials of, and seek regulatory approval for, any future product candidates. In addition, if we obtain regulatory approval for any of our product candidates, weexpect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Accordingly, we will need to obtainsubstantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could beforced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash, cashequivalents and marketable securities as of December 31, 2016, will be sufficient to fund our planned operating expenses and capital expenditure requirements intoat least the third quarter of 2018. We have based these expectations on assumptions that may prove to be wrong, and we could use our capital resources sooner thanwe expect. Our future capital requirements will depend on many factors, including: • the progress and results of our ongoing and planned clinical trials; • the number and development requirements of additional indications for tazemetostat and other product candidates that we may pursue, including thescope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for such product candidates; • our ongoing research for Celgene under our amended and restated collaboration and license agreement; • the costs, timing and outcome of regulatory review of our product candidates; • milestones, option exercise fees, license fees, and other collaboration-based revenues, if any; • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution for any of our productcandidates for which we receive marketing approval; • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defendingany intellectual property-related claims; and • the extent to which we acquire or in-license other products and technologies.Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes yearsto complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our productcandidates, if approved, may not achieve commercial success. Commercial revenues, if any, will not be derived until and unless we can achieve sales ofcommercially available products. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additionalfinancing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategicconsiderations, even if we believe we have sufficient funds for our current or future operating plans.Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or productcandidates.Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debtfinancings and license and development agreements with collaboration partners. To the extent that we raise additional capital through the sale of equity orconvertible debt securities, the ownership interest of our existing stockholders will be diluted and the terms of these securities may include liquidation or otherpreferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements thatinclude covenants limiting or 50Table of Contentsrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have torelinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorableto us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and marketourselves.Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.We commenced active operations in early 2008, and our operations to date have been limited to organizing and staffing our company, business planning, raisingcapital, developing our technology, identifying potential product candidates, undertaking preclinical studies and, beginning in 2012, conducting clinical trials. Allbut three of the product candidates discovered by us are still in preclinical development. We have not yet demonstrated our ability to obtain regulatory approvals,manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successfulproduct commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operatinghistory.In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at somepoint from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such atransition.We expect our financial condition and operating results to continue to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors,many of which are beyond our control. Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operatingperformance.Risks Related to the Commercialization of Our Product CandidatesEven if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third partypayors and others in the medical community necessary for commercial success.If any of our product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payorsand others in the medical community. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenuesand we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number offactors, including: • the efficacy and potential advantages compared to alternative treatments; • our ability to offer our products for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments; • the willingness of the patient population to try new therapies and of physicians to prescribe these therapies; • the strength of marketing and distribution support; • the availability of third party coverage and adequate reimbursement; 51Table of Contents • the prevalence and severity of any side effects; and • any restrictions on the use of our products together with other medications.If we are unable to establish sales, marketing and distribution capabilities, we may not be successful in commercializing our product candidates if and whenthey are approved.We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achievecommercial success for any product for which we have obtained marketing approval, we will need to establish a sales and marketing organization.In the future, we expect to build a focused sales and marketing infrastructure to market some of our product candidates in the United States, and potentially inglobal markets, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example,recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate forwhich we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarilyincurred these commercialization expenses. These efforts may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketingpersonnel.Factors that may inhibit our efforts to commercialize our products on our own include: • our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; • the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; • the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with moreextensive product lines; and • unforeseen costs and expenses associated with creating an independent sales and marketing organization.If we are unable to establish our own sales, marketing and distribution capabilities and enter into arrangements with third parties to perform these services, ourproduct revenues and our profitability, if any, are likely to be lower than if we were to market, sell and distribute any products that we develop ourselves. Inaddition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do soon terms that are acceptable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attentionto sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaborationwith third parties, we will not be successful in commercializing our product candidates.We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates, and willlikely face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies,specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies thatcurrently market and sell products or are pursuing the development of products for the treatment of many of the disease indications for which we are developingour product candidates. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, andothers are based on entirely different approaches. Potential competitors 52Table of Contentsalso include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection andestablish collaborative arrangements for research, development, manufacturing and commercialization.Specifically, there are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnologycompanies. Companies that are developing new epigenetic treatments for cancer that target HMTs include GSK, Novartis AG, Pfizer, Inc., Merck & Co., Inc.,Daiichi Sankyo Company Limited, Takeda Pharmaceutical Company Limited, AbbVie Inc., Bayer Schering Pharma AG and Constellation Pharmaceuticals. Inaddition, many companies are developing cancer therapeutics that work by targeting epigenetic mechanisms other than HMTs, and some including Celgene andEisai, are now marketing cancer treatments that work by targeting epigenetic mechanisms other than HMTs.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer orless severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or otherregulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong marketposition before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third party payors seeking toencourage the use of generic products. Generic products are currently on the market for many of the indications that we are pursuing, and additional products areexpected to become available on a generic basis over the coming years. If our product candidates achieve marketing approval, we expect that they will be priced ata significant premium over competitive generic products.Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertisein research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than wedo.Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of ourcompetitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large andestablished companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sitesand patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third party reimbursementpractices or healthcare reform initiatives, which could harm our business.The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current andfuture legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Somecountries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or productlicensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initialapproval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay ourcommercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in thatcountry. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtainmarketing approval.Our ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and adequate reimbursement for theseproducts and related treatments will be available from 53Table of Contentsgovernment health administration authorities, private health insurers and other organizations. Government authorities and third party payors, such as private healthinsurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S.healthcare industry and elsewhere is cost containment. Government authorities and third party payors have attempted to control costs by limiting coverage and theamount of reimbursement for particular medications. Increasingly, third party payors are requiring that drug companies provide them with predetermined discountsfrom list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for any product that wecommercialize and, even if these are available, the level of reimbursement may not be satisfactory. Reimbursement may affect the demand for, or the price of, anyproduct candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may berequired to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. Ifcoverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize anyproduct candidate for which we obtain marketing approval.There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug isapproved by the FDA or similar regulatory authorities outside of the United States. Moreover, eligibility for reimbursement does not imply that a drug will be paidfor in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, ifapplicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and theclinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for otherservices. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any futurerelaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third party payors oftenrely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequatereimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on ouroperating results, our ability to raise capital needed to commercialize products and our overall financial condition.Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if wecommercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products causedinjuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: • decreased demand for any product candidates or products that we may develop; • injury to our reputation and significant negative media attention; • withdrawal of clinical trial participants; • significant costs to defend any related litigation; • substantial monetary awards to trial participants or patients; • loss of revenue; • reduced resources of our management to pursue our business strategy; and • the inability to commercialize any products that we may develop. 54Table of ContentsWe currently hold $20.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $20.0 million, which may not be adequate tocover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization ofour product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amountadequate to satisfy any liability that may arise.Risks Related to Our Dependence on Third PartiesOur existing therapeutic collaborations are important to our business, and future collaborations may also be important to us. If we are unable to maintain anyof these collaborations, or if these collaborations are not successful, our business could be adversely affected.Our resources for drug development are limited and we do not yet have any capability for sales, marketing or distribution. Accordingly, we have entered intotherapeutic collaborations with other companies that we believe can provide such capabilities, including our collaboration and license agreements with Celgene andGSK. We also rely on Genentech to manage our combination study of tazemetostat and Tecentriq in relapsed or refractory DLBCL, and on LYSA to manage ourcombination study of tazemetostat and R-CHOP in newly diagnosed, elderly, high risk patients with DLBCL. With our reacquisition of tazemetostat rights underour amended and restated collaboration and license agreement with Eisai, we no longer have access to such capabilities for tazemetostat except with Eisai in Japan.Our collaborations have provided us with important funding for our development programs and product platform and we expect to receive additional funding underthese collaborations in the future. Our existing therapeutic collaborations, and any future collaborations we enter into, may pose a number of risks, including thefollowing: • collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; • collaborators may not have the ability or the development capabilities to perform their obligations as expected; • collaborators may not pursue commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renewdevelopment or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, orexternal factors, such as an acquisition, that may divert resources or create competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products and productcandidates if the collaborators believe that the competitive products are more likely to be successfully developed or can be commercialized underterms that are more economically attractive than ours; • product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates orproducts, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; • a collaborator may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of aproduct candidate or product; • a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commitsufficient resources to the marketing and distribution of such product or products; • disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,might cause delays or terminations of the 55Table of Contents research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates,or might result in litigation or arbitration, any of which would be time-consuming and expensive; • collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invitelitigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; • collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and • collaborations may be terminated for the convenience of the collaborator, and, if terminated, we could be required to raise additional capital to pursuefurther development or commercialization of the applicable product candidates.If our therapeutic collaborations do not result in the successful development and commercialization of products or if one of our collaborators terminates itsagreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding weexpect under these agreements, our development of our product platform and product candidates could be delayed and we may need additional resources to developproduct candidates and our product platform. All of the risks relating to product development, regulatory approval and commercialization described in this AnnualReport on Form 10-K also apply to the activities of our therapeutic collaborators.Our existing therapeutic collaborations contain restrictions on our engaging in activities that are the subject of the collaboration with third parties for specifiedperiods of time. For example, under our collaboration agreement with Celgene, subject to specified exceptions, we may not, during the option period, research,develop or commercialize inhibitors directed to DOT1L and the three option targets covered by the agreement outside of the collaboration. These restrictions mayhave the effect of preventing us from undertaking development and other efforts that may appear to be attractive to us.Additionally, subject to its contractual obligations to us, if a collaborator of ours is involved in a business combination, the collaborator might deemphasize orterminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we mayfind it more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.For some of our product candidates or for some CMP targets, we may in the future collaborate with pharmaceutical and biotechnology companies for developmentand potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitiveagreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of theproposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on atimely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or moreof our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures andundertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on ourown, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter intocollaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to furtherdevelop our product candidates or bring them to market or continue to develop our product platform and our business may be materially and adversely affected. 56Table of ContentsFailure of our third party collaborators to successfully commercialize companion diagnostics developed for use with our therapeutic product candidates couldharm our ability to commercialize these product candidates.We do not plan to develop companion diagnostics internally and, as a result, we are dependent on the efforts of our third party collaborators to successfullycommercialize companion diagnostics when existing, available technology may not be sufficient to identify patients for treatment with our therapeutic productcandidates. For example, we are relying on Roche Molecular to develop a companion diagnostic for tazemetostat in NHL to detect activating mutations in EZH2.Our collaborators: • may not perform their obligations as expected or have difficulty responding to accelerated approval time lines; • may encounter production difficulties that could constrain the supply of the companion diagnostics; • may encounter delays or have difficulty obtaining regulatory approval for the companion diagnostic in target markets; • may have difficulties gaining acceptance of the use of the companion diagnostics in the clinical community; • may not pursue commercialization of any companion diagnostics that achieve regulatory approval; • may elect not to continue or renew commercialization programs based on changes in the collaborators’ strategic focus or available funding, or externalfactors such as an acquisition, that divert resources or create competing priorities; • may not commit sufficient resources to the marketing and distribution of such product or products; and • may terminate their relationship with us.If companion diagnostics for use with our therapeutic product candidates fail to gain market acceptance, our ability to derive revenues from sales of our therapeuticproduct candidates could be harmed. If our collaborators fail to commercialize these companion diagnostics, we may not be able to enter into arrangements withanother diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with our therapeutic product candidates or do so oncommercially reasonable terms, which could adversely affect and delay the development or commercialization of our therapeutic product candidates.We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing tomeet deadlines for the completion of such trials.We currently rely on third party clinical research organizations to conduct our ongoing clinical trials and plan to rely on third party clinical research organizationsor third party research collaboratives to conduct our planned clinical trials. We do not plan to independently conduct clinical trials of any future product candidates.We expect to continue to rely on third parties, such as clinical research organizations, clinical data management organizations, medical institutions and clinicalinvestigators, to conduct our clinical trials. These agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we needto enter into alternative arrangements, our product development activities might be delayed.Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocolsfor the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting, recording andreporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trialparticipants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsoreddatabase, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. 57Table of ContentsFurthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfullycarry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we willnot be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to,successfully commercialize our product candidates.We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors coulddelay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us ofpotential product revenue.We contract with third parties for the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so forcommercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or suchquantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.We do not have any manufacturing facilities and rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinicaland clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. This reliance on third parties increases therisk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, preventor impair our development or commercialization efforts.We also expect to rely on third party manufacturers or third party collaborators for the manufacture of commercial supply of any other product candidates for whichour collaborators or we obtain marketing approval. We may be unable to establish any agreements with third party manufacturers or to do so on acceptable terms.Even if we are able to establish agreements with third party manufacturers, reliance on third party manufacturers entails additional risks, including: • reliance on the third party for regulatory compliance and quality assurance; • the possible breach of the manufacturing agreement by the third party; • the possible misappropriation of our proprietary information, including our trade secrets and know-how; and • the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.Third party manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements outsideof the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed onus, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of productcandidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities.There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently havearrangements in place for redundant supply or a second source for bulk drug substance. If our current contract manufacturers cannot perform as agreed, we may berequired to replace such manufacturers. Although we believe that there are several potential alternative manufacturers who could manufacture our productcandidates, we may incur added costs and delays in identifying and qualifying any such replacement. 58Table of ContentsOur current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit marginsand our ability to commercialize any products that receive marketing approval on a timely and competitive basis.Risks Related to Our Intellectual PropertyIf we are unable to obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficientlybroad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize ourtechnology and products may be impaired.Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietarytechnology and products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologiesand product candidates.The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at areasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too lateto obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or tomaintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in amanner consistent with the best interests of our business.The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recentyears been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States.For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications ofdiscoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically notpublished until 18 months after filing, or in some cases at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed inour owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance,scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patentsbeing issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies andproducts. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents ornarrow the scope of our patent protection.In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent termrestoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up tofive years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patentextension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approveddrug may be extended. Similar provisions are available in Europe and other non-United States jurisdictions to extend the term of a patent that covers an approveddrug. In the future, if and when our drug candidates receive FDA approval, we expect to apply for patent term extensions on patents covering those productcandidates. We intend to seek patent term extensions for any of our issued patents in any jurisdiction where they are available, however there is no guarantee thatthe applicable authorities will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. 59Table of ContentsPatent reform legislation such as the Leahy-Smith America Invents Act, or the Leahy-Smith Act, could increase the uncertainties and costs surrounding theprosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes toUnited States patent law. These changes include provisions that affect the way patent applications are prosecuted, redefine prior art, provide more efficient andcost-effective avenues for competitors to challenge the validity of patents, and enable third-party submission of prior art to the U.S. Patent and Trademark Officeduring patent prosecution and additional procedures to attack the validity of a patent at U.S. Patent and Trademark Office administered post-grant proceedings,including post-grant review, inter partes review, and derivation proceedings. In addition, under the Leahy-Smith Act, the United States transitioned to a firstinventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent onan invention regardless of whether a third party was the first to invent the claimed invention. As such, the Leahy-Smith Act and its implementation could increasethe uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have amaterial adverse effect on our business and financial condition.Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition,derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. Forexample, we are involved in an opposition proceeding against our European Patent, the claims of which cover a method for determining whether a cancer patient isa candidate for treatment with an EZH2 inhibitor based on their EZH2 mutation status. An adverse determination in any such submission, proceeding or litigationcould reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, withoutpayment to us, or result in our inability to manufacture or commercialize products without infringing third party patent rights. In addition, if the breadth or strengthof protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop orcommercialize current or future product candidates.Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, preventcompetitors from competing with us or otherwise provide us with any competitive advantage.Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in thecourts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed,invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technologyand products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing andregulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As aresult, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical toours.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming andunsuccessful.Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringementclaims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims againstus alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, inwhole or in part, construe the patent’s claims narrowly or refuse to 60Table of Contentsstop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigationproceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commerciallyreasonable terms.A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for usto use the patented or proprietary technology of third parties to commercialize our products, in which case we may be required to obtain a license from these thirdparties on commercially reasonable terms, or our business could be harmed, possibly materially.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould have a material adverse effect on the success of our business.Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use ourproprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology andpharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights withrespect to our products and technology, including interference or derivation proceedings before the U.S. Patent and Trademark Office. Third parties may assertinfringement claims against us based on existing patents or patents that may be granted in the future.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing andmarketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we wereable to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including bycourt order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damagesand attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates orforce us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information ortrade secrets of third parties could have a similar negative impact on our business.If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that areimportant to our business.We are party to license and research agreements that impose, and we may enter into additional licensing and funding arrangements with third parties that mayimpose, diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. Under our existing licensingand funding agreements, we are obligated to pay royalties on net product sales of product candidates or related technologies to the extent they are covered by theagreements. We also had diligence and development obligations under those agreements that we have satisfied. If we fail to comply with our obligations undercurrent or future license and funding agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able todevelop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence couldmaterially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction orelimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to loseour rights under these agreements, including our rights to important intellectual property or technology. 61Table of ContentsWe may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of whatwe regard as our own intellectual property.Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potentialcompetitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject toclaims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’sformer employer. Litigation may be necessary to defend against these claims.In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreementsassigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property thatwe regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against thirdparties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and coulddistract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings,motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverseeffect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available fordevelopment activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation orproceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of theirgreater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability tocompete in the marketplace.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology andother proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure andconfidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contractmanufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employeesand consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and wemay not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult,expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside of the United States are less willing or unwilling toprotect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them,or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to orindependently developed by a competitor, our competitive position would be harmed. 62Table of ContentsRisks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance MattersEven if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and mayprevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we are not able to obtain, or if there are delays inobtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materiallyimpaired.Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy,recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, export and import are subject to comprehensive regulation by the FDA andother regulatory agencies in the United States and by the EMA and similar regulatory authorities outside of the United States. Failure to obtain marketing approvalfor a product candidate will prevent us from commercializing the product candidate. We have not submitted an application for or received marketing approval forany of our product candidates in the United States or in any other jurisdiction.We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third party CROs to assist usin this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authoritiesfor each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of informationabout the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective,may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtainingmarketing approval or prevent or limit commercial use. New cancer drugs frequently are indicated only for patient populations that have not responded to anexisting therapy or have relapsed.The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, ifapproval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidatesinvolved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes inregulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantialdiscretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additionalpreclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or preventmarketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitmentsthat render the approved product not commercially viable.If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates maybe harmed and our ability to generate revenues will be materially impaired.We may not be able to obtain orphan drug exclusivity for our product candidates and, even if we do, that exclusivity may not prevent the FDA or the EMA fromapproving other competing products.Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs.Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generallydefined as a patient population of fewer than 200,000 individuals annually in the United States. We have obtained orphan drug designations for tazemetostat for thetreatment of INI1-negative malignant rhabdoid tumors, or MRT as well as MRTO, in the United States and for pinometostat for the treatment of acutelymphoblastic leukemia and acute 63Table of Contentsmyeloid leukemia in the United States and Europe. We may not receive orphan drug designation for these product candidates for other indications, or for any otherfuture clinical candidates we may develop.Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, theproduct is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug forthat time period. The applicable period is seven years in the United States and ten years in Europe. The exclusivity period in Europe can be reduced to six years if adrug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drugexclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficientquantity of the drug to meet the needs of patients with the rare disease or condition.Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can beapproved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if theFDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.A Fast Track designation by the FDA, such as the Fast Track designation we received for tazemetostat, may not lead to a faster development or regulatoryreview or approval process.We have received Fast Track designation from the FDA for tazemetostat for patients with DLBCL with mutated EZH2 and intend to seek Fast Track designationfor tazemetostat for other indications and for our other product candidates as appropriate. If a drug is intended for the treatment of a serious or life-threateningcondition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track designation.The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, wecannot assure that the FDA would decide to grant it. Even if we do receive Fast Track designation as we have for tazemetostat, we may not experience a fasterdevelopment process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track designation if it believes that thedesignation is no longer supported by data from our clinical development program.A breakthrough therapy designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, andit does not increase the likelihood that our product candidates will receive marketing approval.A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease orcondition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinicallysignificant endpoints, such as substantial treatment effects observed early in clinical development. For drugs and biologics that have been designated asbreakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinicaldevelopment while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are alsoeligible for accelerated approval.Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria fordesignation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. Even if we receive breakthrough therapydesignation, the receipt of such designation for a product candidate may not result in a faster development process, review or approval compared to drugsconsidered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our productcandidates qualify as breakthrough 64Table of Contentstherapies, the FDA may later decide that the products no longer meet the conditions for qualification or decide that the time period for FDA review or approval willnot be shortened.Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed in that jurisdiction.In order to market and sell our products in the European Union and many other foreign jurisdictions, we or our third party collaborators must obtain separatemarketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additionaltesting. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside of theUnited States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside of the United States, a product mustbe approved for reimbursement before the product can be approved for sale in that country. We or our third party collaborators may not obtain approvals fromregulatory authorities outside of the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in othercountries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by regulatory authorities in other countriesor jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in anymarket.If we are required by the FDA to obtain approval of a companion diagnostic in connection with approval of a candidate therapeutic product, and we do notobtain or there are delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize the product candidate and our ability togenerate revenue will be materially impaired.According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product orindication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved orcleared for that indication. Under the Federal Food, Drug, and Cosmetic Act, companion diagnostics are regulated as medical devices, and the FDA has generallyrequired companion diagnostics intended to select the patients who will respond to cancer treatment to obtain Premarket Approval, or a PMA, for the diagnostic.The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, involves a rigorous premarket reviewduring which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the deviceand its components regarding, among other things, device design, manufacturing and labeling. A PMA is not guaranteed and may take considerable time, and theFDA may ultimately respond to a PMA submission with a “not approvable” determination based on deficiencies in the application and require additional clinicaltrial or other data that may be expensive and time-consuming to generate and that can substantially delay approval. As a result, if we are required by the FDA toobtain approval of a companion diagnostic for a candidate therapeutic product, and we do not obtain or there are delays in obtaining FDA approval of a diagnosticdevice, we may not be able to commercialize the product candidate on a timely basis or at all and our ability to generate revenue will be materially impaired.Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market and we may besubject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if anyof them are approved.Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising andpromotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirementsinclude submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating tomanufacturing, quality control, quality assurance and corresponding maintenance 65Table of Contentsof records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidateis granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including therequirement to implement a risk evaluation and mitigation strategy. New cancer drugs frequently are indicated only for patient populations that have not respondedto an existing therapy or have relapsed. If any of our product candidates receives marketing approval, the accompanying label may limit the approved use of ourdrug in this way, which could limit sales of the product.The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. TheFDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of drugs toensure they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and DOJimpose stringent restrictions on manufacturers’ communications regarding off-label use, and if we do not market our products for their approved indications, wemay be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act and other statutes, including the FalseClaims Act, relating to the promotion and advertising of prescription drugs may lead to investigations and enforcement actions alleging violations of federal andstate health care fraud and abuse laws, as well as state consumer protection laws.In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure tocomply with regulatory requirements, may yield various results, including: • restrictions on such products, manufacturers or manufacturing processes; • restrictions on the labeling or marketing of a product; • restrictions on product distribution or use; • requirements to conduct post-marketing studies or clinical trials; • warning letters or untitled letters; • withdrawal of the products from the market; • refusal to approve pending applications or supplements to approved applications that we submit; • recall of products; • fines, restitution or disgorgement of profits or revenues; • suspension or withdrawal of marketing approvals; • damage to relationships with any potential collaborators; • unfavorable press coverage and damage to our reputation; • refusal to permit the import or export of our products; • product seizure; • injunctions or the imposition of civil or criminal penalties; or • litigation involving patients using our products.Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development ofproducts for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the European Union’s requirementsregarding the protection of personal information can also lead to significant penalties and sanctions. 66Table of ContentsOur relationships with healthcare providers, physicians and third party payors will be subject to applicable anti-kickback, fraud and abuse and otherhealthcare laws and regulations, which, in the event of a violation, could expose us to criminal sanctions, civil penalties, contractual damages, reputationalharm and diminished profits and future earnings.Healthcare providers, physicians and third party payors will play a primary role in the recommendation and prescription of any product candidates for which weobtain marketing approval. Our future arrangements with healthcare providers, physicians and third party payors may expose us to broadly applicable fraud andabuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell anddistribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include thefollowing: • the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providingremuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase,order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicareand Medicaid; • the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals orentities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcareprogram or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay moneyto the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to$11,000 per false claim; • the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme todefraud any healthcare benefit program or making false statements relating to healthcare matters; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposesobligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiablehealth information; • the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs to report payments and other transfers of value tophysicians and teaching hospitals; and • analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, may apply to sales ormarketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including privateinsurers.Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant complianceguidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value tophysicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in somecircumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It ispossible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involvingapplicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmentalregulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of productsfrom government 67Table of Contentsfunded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcareproviders or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil oradministrative sanctions, including exclusions from government funded healthcare programs.Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidatesand affect the prices we may obtain.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcaresystem that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sellany product candidates for which we obtain marketing approval. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases bythe elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation providedauthority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation coulddecrease the coverage and price that we receive for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries, private payorsoften follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that resultsfrom the MMA may result in a similar reduction in payments from private payors.In March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act, as amended by the Health Care and Education AffordabilityReconciliation Act, or collectively, the PPACA, a sweeping law which included changes to the coverage and reimbursement of drug products under governmenthealthcare programs.Among the provisions of the PPACA of importance to our potential product candidates are the following: • an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; • expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers,and enhanced penalties for noncompliance; • a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices; • extension of manufacturers’ Medicaid rebate liability; • expansion of eligibility criteria for Medicaid programs; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • requirements to report financial arrangements with physicians and teaching hospitals; • a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and • a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along withfunding for such research.Further, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes include aggregate reductions to Medicarepayments to providers of up to 2% per fiscal year, starting in 2013. In 68Table of ContentsJanuary 2013, the American Taxpayer Relief Act of 2012 became law, which, among other things, reduced Medicare payments to several providers, and increasedthe statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions inMedicare and other healthcare funding. In addition, there have been recent public announcements by members of the U.S. Congress and the new presidentialadministration regarding their plans to repeal and replace the PPACA. However, it remains unclear how a repeal or replacement of current healthcare programsmight affect our ability to sell our products and the prices we may obtain for any of our approved products.We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and inadditional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other governmentprograms may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms mayprevent us from being able to generate revenue, attain profitability, or commercialize our products.Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceuticalproducts. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, orwhat the impact of such changes on the marketing approvals of our product candidates, if any, may be. Increased scrutiny by the U.S. Congress of the FDA’sapproval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing andother requirements.Governments outside of the United States tend to impose strict price controls, which may adversely affect our revenues, if any.In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In thesecountries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtainreimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate toother available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our businesscould be harmed, possibly materially.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harmour business.We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage,treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biologicalmaterials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannoteliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we couldbe held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal finesand penalties for failure to comply with such laws and regulations.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use ofhazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability ortoxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or futurelaws and regulations may impair our research, development 69Table of Contentsor production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which couldcause significant liability for us and harm our reputation.We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations ofcomparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturingstandards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established andenforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employeemisconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harmto our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not beeffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from afailure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselvesor asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or othersanctions.Risks Related to Employee Matters and Managing GrowthOur future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.We are highly dependent on the research and development, clinical and business expertise of our executive officers as well as the other principal members of ourmanagement, scientific and clinical teams. Although we have entered into employment letter agreements with our executive officers, each of them may terminatetheir employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the servicesof our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harmour ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take anextended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gainregulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivatethese key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies, universities and researchinstitutions for similar personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our researchand development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments underconsulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel,our ability to pursue our growth strategy will be limited. 70Table of ContentsWe expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, wemay encounter difficulties in managing our growth, which could disrupt our operations.We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development,regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, wemust continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additionalqualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipatedgrowth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of ouroperations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay theexecution of our business plans or disrupt our operations.Risks Related to Our Common StockOur executive officers and directors and their affiliates, if they choose to act together, may have the ability to significantly influence all matters submitted tostockholders for approval.As of March 1, 2017, our executive officers and directors and their affiliates beneficially own, in the aggregate, shares representing approximately 33% of ourcommon stock. As a result, if these stockholders were to choose to act together, they may be able to significantly influence all matters submitted to our stockholdersfor approval, as well as our management and affairs. For example, these persons, if they choose to act together, could significantly influence the election ofdirectors and approval of any merger, consolidation or sale of all or substantially all of our assets.This concentration of ownership control may: • delay, defer or prevent a change in control; • entrench our management and board of directors; or • impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.Provisions in our corporate charter documents, under Delaware law and in our collaboration agreements could make an acquisition of our company, whichmay be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company thatstockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could alsolimit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Inaddition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attemptsby our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.Among other things, these provisions: • establish a classified board of directors such that only one of three classes of directors is elected each year; • allow the authorized number of our directors to be changed only by resolution of our board of directors; • limit the manner in which stockholders can remove directors from our board of directors; • establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board ofdirectors; 71Table of Contents • require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; • limit who may call stockholder meetings; • authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would workto dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors;and • require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal specifiedprovisions of our certificate of incorporation or bylaws.Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibitsa person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transactionin which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.An active trading market for our common stock may not be sustained.Although our common stock is listed on The NASDAQ Global Market, an active trading market for our shares may not be sustained. If an active market for ourcommon stock does not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their shares atall. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and mayimpair our ability to acquire other companies or technologies by using our shares as consideration.The price of our common stock has been and may in the future be volatile and fluctuate substantially.Our stock price has been and may in the future be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular haveexperienced extreme volatility that has often been unrelated to the operating performance of particular companies. From January 1, 2015 until March 1, 2017, thesale price of our common stock as reported on the NASDAQ Global Market ranged from a high of $28.48 to a low of $7.02. The market price for our commonstock may be influenced by many factors, including: • the success of competitive products or technologies; • results of clinical trials of our product candidates or those of our competitors; • regulatory or legal developments in the United States and other countries; • developments or disputes concerning patent applications, issued patents or other proprietary rights; • the recruitment or departure of key personnel; • the level of expenses related to any of our product candidates or clinical development programs; • the results of our efforts to discover, develop, acquire or in-license additional product candidates or products; • actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; • variations in our financial results or the financial results of companies that are perceived to be similar to us; • changes in the structure of healthcare payment systems; • market conditions in the pharmaceutical and biotechnology sectors; 72Table of Contents • general economic, industry and market conditions; and • the other factors described in this Risk Factors section.We have broad discretion over the use of our cash and cash equivalents and may not use them effectively.Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve ourresults of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses thatcould have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pendingtheir use to fund operations, we may invest our cash and cash equivalents in a manner that does not produce income or that loses value.We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock lessattractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growthcompany through 2018. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosurerequirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: • not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; • not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatoryaudit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; • reduced disclosure obligations regarding executive compensation; and • exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any goldenparachute payments not previously approved.We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock lessattractive, as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, the JOBS Act providesthat an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provisionallows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We haveirrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other publiccompanies that are not emerging growth companies.We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time tocompliance initiatives and corporate governance practices.As a public company, and particularly after we are no longer an emerging growth company, we will continue to incur significant legal, accounting and otherexpenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ GlobalMarket and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance ofeffective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantialamount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make someactivities more time-consuming and costly.We cannot predict or estimate the amount of additional costs we may incur to continue to operate as a public company, nor can we predict the timing of such costs.These rules and regulations are often subject to varying 73Table of Contentsinterpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided byregulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions todisclosure and governance practices.Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control overfinancial reporting. However, while we remain an emerging growth company, we are not required to include an attestation report on internal control over financialreporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we are engaged in aprocess to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue todedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control overfinancial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implementa continuous reporting and improvement process for internal control over financial reporting. If we identify one or more material weaknesses, it could result in anadverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole source ofgain for our stockholders.We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth anddevelopment of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any,of our common stock will be the sole source of gain for our stockholders for the foreseeable future.If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our share price andtrading volume could decline.The trading market for our common stock may be impacted, in part, by the research and reports that securities or industry analysts publish about us or our business.There can be no assurance that analysts will cover us, continue to cover us or provide favorable coverage. If one or more analysts downgrade our stock or changetheir opinion of our stock, our share price may decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us,we could lose visibility in the financial markets, which could cause our share price or trading volume to decline. It em 1B.Unresolved Staff CommentsNone. Item 2.PropertiesOur headquarters are located in Cambridge, Massachusetts, where we occupy approximately 42,500 square feet of office and laboratory space. The term of theCambridge lease expires May 31, 2018. In addition, we occupy approximately 4,000 square feet of office space in Durham, North Carolina. The term of theDurham lease expires on July 31, 2017. Item 3.Legal ProceedingsWe are not currently a party to any material legal proceedings. Item 4.Mine Safety DisclosuresNot applicable. 74Table of ContentsPART IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded on the NASDAQ Global Market under the symbol “EPZM.” Trading of our common stock commenced on May 31, 2013, followingthe completion of our initial public offering. The following table sets forth the high and low sale prices per share of our common stock, as reported on theNASDAQ Global Market, for the periods indicated: Market Price High Low Year ended December 31, 2016: Fourth quarter $12.35 $8.55 Third quarter $10.55 $7.12 Second quarter $13.20 $8.96 First quarter $15.28 $8.79 Year ended December 31, 2015: Fourth quarter $18.29 $11.26 Third quarter $25.25 $12.00 Second quarter $28.48 $15.51 First quarter $25.48 $16.63 As of March 1, 2017, the number of holders of record of our common stock was 21. This number does not include beneficial owners whose shares are held in streetname.DividendsWe have never declared or paid cash dividends on our capital stock. We intend to retain all of our future earnings, if any, to finance the growth and development ofour business. We do not intend to pay cash dividends to our stockholders in the foreseeable future. 75Table of ContentsStock Performance GraphThe following graph shows a comparison from May 31, 2013, the first date that shares of our common stock were publicly traded, through December 31, 2016 ofthe cumulative total return on an assumed investment of $100.00 in cash in our common stock, the NASDAQ Composite Index and the NASDAQ BiotechnologyIndex. Such returns are based on historical results and are not intended to suggest future performance. Data for the NASDAQ Composite Index and NASDAQBiotechnology Index assume reinvestment of dividends. The performance graph in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities andExchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any of ourfilings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. 76Table of ContentsItem 6. Selected Financial DataThe following selected financial data has been derived from our consolidated financial statements. The information set forth below should be read in conjunctionwith Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and with our consolidated financial statements and notesthereto included elsewhere in this document. Year Ended December 31, 2016 2015 2014 2013 2012 (In thousands, except per share data) Consolidated Statements of Operations Data: Collaboration revenue $8,007 $2,560 $41,411 $68,482 $45,222 Operating expenses: Research and development 91,461 111,209 75,595 57,567 38,482 General and administrative 28,372 23,900 20,866 14,042 7,508 Total operating expenses 119,833 135,109 96,461 71,609 45,990 Operating loss (111,826) (132,549) (55,050) (3,127) (768) Other income (expense), net 1,614 173 154 (7) 67 Income tax expense — — 109 349 1 Net loss $(110,212) $(132,376) $(55,005) $(3,483) $(702) Accretion of redeemable convertible preferred stock to redemption value — — — 264 486 Loss allocable to common stockholders $(110,212) $(132,376) $(55,005) $(3,747) $(1,188) Basic and diluted loss per share allocable to common stockholders $(1.93) $(3.32) $(1.67) $(0.22) $(0.72) Basic and diluted weighted average shares outstanding 57,126 39,839 33,027 17,049 1,645 As of December 31, 2016 2015 2014 2013 2012 (In thousands) Consolidated Balance Sheets Data: Cash and cash equivalents $77,895 $208,323 $190,095 $123,564 $97,981 Marketable securities 164,297 — — — — Total assets 252,441 217,903 199,203 162,988 103,511 Deferred revenue 28,809 30,709 23,151 46,872 69,445 Redeemable convertible preferred stock — — — — 76,156 Total stockholders’ equity (deficit) 201,700 169,532 160,282 104,313 (51,126) 77Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOur management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in thisAnnual Report on Form 10-K, which have been prepared by us in accordance with accounting principles generally accepted in the United States, or GAAP, andwith Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with theseconsolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in thisdiscussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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. RiskFactors of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statementscontained in the following discussion and analysis.OverviewEpizyme is a clinical stage biopharmaceutical company that discovers, develops and plans to commercialize novel epigenetic therapies for patients with cancer andother diseases. We are leaders in discovering and developing small molecule inhibitors of a class of enzymes known as HMTs as well as other CMPs. CMPsmediate selective and reversible modifications to chromatin, a complex of chromosomal DNA and histone proteins that controls gene expression. This chromatinremodeling and its resultant control of gene expression are part of a larger regulatory system, commonly referred to as epigenetics. Genetic alterations within CMPsor that indirectly affect CMPs can result in changes to their activity and drive multiple types of cancer, including hematological cancers and solid tumors, as well asother diseases. We believe that inhibiting altered CMPs presents the opportunity to create, develop and commercialize multiple targeted therapeutics.Our lead product candidate, tazemetostat, is an oral, first-in-class potent and selective inhibitor of the EZH2 HMT, an enzyme that is implicated in a wide range ofcancers. In our clinical trials of tazemetostat in patients with relapsed or refractory NHL and in patients with certain molecularly defined solid tumors, tazemetostatshowed meaningful clinical activity as a monotherapy, and was generally well tolerated. We are conducting a broad clinical development program for tazemetostatas both a monotherapy and combination treatment, in relapsed/refractory and front-line disease, across a number of subtypes of NHL and in patients with andwithout EZH2 activating mutations. We are also testing tazemetostat in several different types of molecularly defined solid tumors, including INI1-negative tumorsin adults and children and in adults with mesothelioma characterized by BAP1 loss-of-function.In 2017, we expect to execute on the following relating to tazemetostat: • continue dosing patients in our Phase 2 monotherapy trial of tazemetostat in adults with molecularly defined solid tumors and, if accepted, presentinterim data from this trial at ASCO in Chicago, Illinois in June 2017. We plan on interacting with regulatory agencies, beginning with the FDA, inmid-2017 with the goal of defining our registration pathways for our molecularly defined solid tumor program in adult patients; • continue dosing patients in our Phase 2 monotherapy study of tazemetostat in adults with relapsed or refractory NHL and submit, and if accepted,present interim data from this trial at ICML in Lugano, Switzerland in June 2017. We plan on interacting with regulatory agencies, beginning with theFDA, in the second half of 2017 on our NHL program, with the goal of defining our registration pathways in various subtypes of NHL; • continue dosing patients in the dose escalation and expansion phase of our Phase 1 monotherapy study of tazemetostat in children with molecularlydefined solid tumors to determine the recommended Phase 2 dose and initiate the dose-expansion stage of the trial; 78Table of Contents • advance our combination trial of tazemetostat and Tecentriq in patients with relapsed or refractory DLBCL, determine the recommended Phase 2 doseand advance into the expansion portion of the study; • advance our Phase 1b combination trial of tazemetostat and R-CHOP in front-line patients with DLBCL to determine the recommended Phase 2 doseand advance into the Phase 2 expansion portion of the study; • continue the newly opened additional arm of our ongoing Phase 2 NHL study to investigate tazemetostat in combination with prednisolone for patientswith relapsed or refractory DLBCL; • design and initiate a combination trial of tazemetostat in FL; and • complete the first stage of our Phase 2 study of tazemetostat in patients with mesothelioma characterized by a loss-of-function of BAP1 to determineproof of concept and enroll in the second stage of the study.We own the global development and commercialization rights to tazemetostat outside of Japan. Eisai holds the rights to develop and commercialize tazemetostat inJapan, and holds a limited right of first negotiation for the rest of Asia.We have collaboration agreements with Celgene, GSK, and Eisai for research and development activities. We also have a collaboration with Roche Molecular todevelop a companion diagnostic to detect EZH2 activating mutations in patients with NHL. These collaborations provide us with access to considerable scientific,development, regulatory and commercial capabilities. We have received $207.8 million in non-equity funding under these collaborations to date.Since our inception, we have pioneered the discovery and development of novel epigenetic medicines. We have discovered and developed three first-in-classexperimental medicines that are in clinical trials. Pinometostat, an inhibitor of the DOT1L HMT that is the subject to our collaboration with Celgene, is currentlybeing evaluated through a CRADA with the CTEP of the NCI, as a combination therapy for patients with acute leukemias. Under our collaboration with GSK,GSK3326595, a PRMT5 inhibitor, is being evaluated by GSK in a Phase 1 clinical trial in patients with solid tumors and NHL. We have additional small moleculeHMT inhibitors that are being developed under our collaborations with Celgene and GSK. We have also identified multiple novel epigenetic targets for which weare developing small molecule inhibitors in preclinical drug discovery. We own the global development and commercialization rights to these programs. All of ournovel targets have been identified internally using our proprietary drug discovery platform, and all of our small molecule inhibitors have been discovered internally.Through December 31, 2016, we have raised an aggregate of $728.7 million to fund our operations, of which $207.8 million was non-equity funding through ourcollaboration agreements, $444.9 million was from the sale of common stock in our public offerings and $76.0 million was from the sale of redeemable convertiblepreferred stock. As of December 31, 2016, we had $242.2 million in cash, cash equivalents and marketable securities.We commenced active operations in early 2008, and since inception, have incurred significant operating losses. As of December 31, 2016, our accumulated deficittotaled $353.7 million. As a clinical stage company, we expect to continue to incur significant expenses and operating losses over the next several years. Our netlosses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses to increase in connection with our ongoing activities, includingour continued execution on our clinical development plans for tazemetostat.CollaborationsRefer to Item 1, Collaborations and Note 9, Collaborations , of the notes to our consolidated financial statements in Item 15 of this Annual Report on Form 10-Kfor a description of the key terms of our arrangements with Eisai, Celgene and GSK, as well as the related accounting and revenue recognition considerations. 79Table of ContentsResults of Operations for the Years Ended December 31, 2016, 2015 and 2014Collaboration RevenueThe following is a comparison of collaboration revenue for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) Collaboration revenue $8.0 $2.6 $41.4 Our revenue consists of collaboration revenue, including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtainlicenses in the future, research and development services revenue earned and milestone payments earned under collaboration and license agreements with ourcollaboration partners.The following table summarizes our collaboration revenue, by collaboration, for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) Collaboration Partner GSK: Upfront revenue $— $1.0 $11.5 Milestone revenue 6.0 — 3.0 Research and development revenue — 0.4 11.0 Celgene: Upfront revenue 1.9 1.1 9.6 Eisai: Upfront revenue — — 1.6 Research and development revenue — — 4.7 Other 0.1 0.1 — $8.0 $2.6 $41.4 Collaboration revenue for the year ended December 31, 2016 increased $5.4 million as compared to the year ended December 31, 2015, primarily as a result of theachievement of a $6.0 million milestone under our agreement with GSK during 2016. Collaboration revenues for the year ended December 31, 2015 decreased$38.8 million as compared to the year ended December 31, 2014, primarily as a result of the completion of a significant portion of our performance obligationsunder our collaborations during 2014 and achievement of a $3.0 million milestone under our agreement with GSK during 2014.GSK. In the year ended December 31, 2016, revenue attributable to the GSK collaboration reflects the $6.0 million milestone earned upon GSK’s initiation ofpatient dosing in a Phase 1 clinical trial of GSK3326595, a PRMT5 inhibitor discovered by us and licensed to GSK under the collaboration agreement. Upfrontrevenue of $1.0 million and $11.5 million in the years ended December 31, 2015 and 2014, respectively, reflects the recognition of deferred revenue related toupfront payments for licenses under the agreement. Milestone revenue from GSK in the year ended December 31, 2014 represents $3.0 million in preclinicalresearch and development milestones achieved under the agreement. Research and development revenue of $0.4 million and $11.0 million in the years endedDecember 31, 2015 and 2014, respectively, relates to research and development services performed during the year. Since we have no further performanceobligations under the GSK collaboration, future revenues under the collaboration will relate to milestone payments and royalties received under the 80Table of Contentsagreement, if any. Upfront and research and development revenue decreased each year as a result of the completion of a significant portion of our performanceobligations during 2014.Celgene. Collaboration revenue attributed to the Celgene collaboration increased in the year ended December 31, 2016, as compared to the year endedDecember 31, 2015, primarily due to the recognition of deferred revenue attributed to the pinometostat clinical trial services as part of the accounting for theamended and restated Celgene agreement, which was entered into during the third quarter of 2015. Upfront revenue of $1.1 million and $9.6 million in the yearsended December 31, 2015 and 2014, respectively, reflects the recognition of deferred revenue related to upfront payments for licenses under the agreement.Upfront revenue decreased from 2014 to 2015 a result of the completion of a significant portion of our performance obligations during 2014.As of December 31, 2016, all of our deferred revenue relates to our Celgene collaboration. The recognition of deferred revenue under the amended and restatedCelgene agreement is dependent on the future development of the non-pinometostat targets that are subject to the collaboration, as all of the $28.8 million deferredrevenue as of December 31, 2016 relates to the non-pinometostat targets. We do not expect to recognize any of the remaining $28.8 million of deferred revenue asof December 31, 2016 related to the three non-pinometostat targets for the next twelve months, unless or until Celgene exercises its option rights with respect tothose targets or those option rights lapse.Eisai. Following the execution of the amended and restated collaboration and license agreement with Eisai, we do not expect to recognize any further amountsfrom Eisai, except for potential royalties on EZH2 product sales in Japan that we may receive in the future. Upfront revenue of $1.6 million in the year endedDecember 31, 2014 reflects the recognition of deferred revenue related to an upfront payment under the agreement. Research and development revenue of $4.7million in the year ended December 31, 2014 relates to research and development services performed during the year.Research and DevelopmentResearch and development expenses consist of expenses incurred in performing research and development activities, including clinical trials and related clinicalmanufacturing expenses, fees paid to external providers of research and development services, third party clinical research organizations, or CROs, compensationand benefits for full-time research and development employees, facilities expenses, overhead expenses, and other outside expenses. Most of our research anddevelopment costs are external costs, which we track on a program-by-program basis. Our internal research and development costs are primarily compensationexpenses for our full-time research and development employees, including stock-based compensation expense.In our early-stage research, we identify and prioritize novel CMPs that are implicated in cancer and other diseases, and seek to develop potent and selective smallmolecule inhibitors of these targets. During this phase of research, our external costs primarily relate to lead discovery, biology, drug metabolism andpharmacokinetics and chemistry services from a multinational network of third party providers of research and development services. As our product candidatesprogress into preclinical and clinical development, external costs are driven by clinical trial costs, manufacturing expenses, and third-party research anddevelopment expenses.In circumstances where our collaboration and license agreements provide for equally co-funded global development under joint risk sharing collaborations, andwhere we are the study sponsor, such as our Celgene collaboration, amounts received for co-funding are recorded as a reduction to research and developmentexpense. 81Table of ContentsThe following is a comparison of research and development expenses for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) Research and development $91.5 $111.2 $75.6 During the year ended December 31, 2016, total research and development expenses decreased by $19.7 million compared to the year ended December 31, 2015,primarily due to the $40.0 million upfront payment that we made to Eisai in the first quarter of 2015 to reacquire the worldwide rights, excluding Japan, totazemetostat. The impact of the prior year upfront payment was partially offset by higher spending on the tazemetostat program and discovery/preclinical andinternal research and development costs in the year ended December 31, 2016 compared to the year ended December 31, 2015.During the year ended December 31, 2015 total research and development expenses increased by $35.6 million compared to the year ended December 31, 2014,primarily due to the $40.0 million upfront payment that we made to Eisai to reacquire the worldwide rights, excluding Japan, to the EZH2 program, includingtazemetostat, and the related costs to accelerate the development of tazemetostat. These cost increases were partially offset by reduced spending on pinometostatand related DOT1L programs and on our discovery and preclinical programs.The following table illustrates the components of our research and development expenses: Year Ended December 31, Product Program 2016 2015 2014 (In millions) External research and development expenses: Tazemetostat and related EZH2 programs $39.9 $63.1 $3.8 Pinometostat and related DOT1L programs 2.6 5.3 15.2 Discovery and preclinical stage product programs, collectively 18.9 16.3 31.5 Internal research and development expenses 30.1 26.5 25.1 Total research and development expenses $91.5 $111.2 $75.6 External research and development costs related to tazemetostat include ongoing clinical trial costs, preclinical research in support of the tazemetostat program,expenses associated with our companion diagnostic program, and external manufacturing costs related to the acquisition of active pharmaceutical ingredient andmanufacturing of clinical drug supply. External research and development expenses for tazemetostat decreased $23.2 million during the year ended December 31,2016 compared to the year ended December 31, 2015. The decrease in tazemetostat related spending in the year ended December 31, 2016 is primarily a result ofthe $40.0 million upfront payment made to Eisai in the prior year, offset by a significant increase in tazemetostat clinical trial activities in the year endedDecember 31, 2016. External research and development expenses for tazemetostat during 2015 include the costs associated with our reacquisition of worldwiderights, excluding Japan, to the EZH2 program, including tazemetostat, from Eisai during the first quarter of 2015. External research and development expenses fortazemetostat in 2015 include Phase 1/2 clinical trial costs, discovery and preclinical research in support of the tazemetostat program, expenses associated with ourcompanion diagnostic program, and external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drugsupply. External research and development expenses for tazemetostat increased $59.3 million during the year ended December 31, 2015 compared to the yearended December 31, 2014, primarily due to the upfront payment made to Eisai and the significant expansion of our tazemetostat clinical activities in 2015. In theyear ended December 31, 2014, external research and development expenses of $3.8 million for tazemetostat related to the Phase 1 clinical trial costs andexploratory research costs incurred pursuant to our original agreement with Eisai. 82Table of ContentsExternal research and development expenses for pinometostat decreased by $2.7 million for the year ended December 31, 2016 compared to 2015. The decline inprogram spending reflects our completion of enrollment in the pinometostat adult and pediatric clinical trials and the associated reduction in costs. We completedenrollment in our pinometostat adult Phase 1 clinical trial in the third quarter of 2015 and the pediatric Phase 1 clinical trial in the first quarter of 2016. The costsincurred related to pinometostat in year ended December 31, 2016 are primarily associated with study closeout and final reporting activities on the Phase 1 clinicaltrials, as well as costs attributed to the CRADA with the NCI. External research and development expenses for pinometostat for the year ended December 31, 2015decreased by $9.9 million compared to the year ended December 31, 2014. The decline in program spending in 2015 reflects reduced enrollment in thepinometostat adult and pediatric clinical trials and the associated reduction in costs to support the preclinical and research programs. Research and developmentexpenses for pinometostat for the years ended December 31, 2016, 2015 and 2014 are net of less than $0.1 million, $1.1 million and $3.9 million, respectively, ofglobal development co-funding from Celgene.External research and development expenses for discovery and preclinical stage product programs increased $2.6 million for the year ended December 31, 2016 ascompared to the year ended December 31, 2015, due to increased spending on high priority discovery programs. External research and development expenses fordiscovery and preclinical stage product programs decreased by $15.2 million for the year ended December 31, 2015 as compared to the year ended December 31,2014. This decrease reflected our reallocation of resources to support the expansion of the tazemetostat programs and our reprioritization of our discovery andpreclinical development programs.Internal research and development expenses are primarily compensation expenses for our full-time research and development employees. Internal research anddevelopment expenses increased $3.6 million for year ended December 31, 2016 as compared to the year ended December 31, 2015. The increase in internalresearch and development costs in the year ended December 31, 2016 was primarily due to the expansion of our development organization to support expandedtazemetostat clinical trials, chemistry, manufacturing and controls, translational medicine, data analytics and regulatory activities. Internal research anddevelopment expenses increased by $1.4 million for the year ended December 31, 2015 compared to the year ended December 31, 2014. The increase in 2015resulted from the expansion of our internal clinical development team to support ongoing and new clinical programs and evaluations of tazemetostat, drugmanufacturing, and regulatory filings following the reacquisition of tazemetostat from Eisai.We expect research and development expenses to increase significantly in 2017, as we progress and expand our development program for tazemetostat, expand ourregulatory activities, and potentially advance a preclinical program into later stage preclinical testing.General and AdministrativeGeneral 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 general and administrative expenses include allocated facility-related costs not otherwiseincluded in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including intellectual property andgeneral legal services.The following is a comparison of general and administrative expenses for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) General and administrative $28.4 $23.9 $20.9 83Table of ContentsFor the year ended December 31, 2016, our general and administrative expenses increased $4.5 million compared to the year ended December 31, 2015, primarilydue to higher compensation-related expenses associated with additions to the senior leadership team in the first half of 2016, as well as increased investment inbusiness development activities and pre-commercial activities related to tazemetostat. For the year ended December 31, 2015, our general and administrativeexpenses increased by $3.0 million, or 14%, compared to the year ended December 31, 2014, primarily related to additional intellectual property and related legalcosts and compensation-related expenses.We expect that general and administrative expenses will increase in 2017, as we plan to increase our pre-commercial activities, including the continued buildout ofour medical affairs and commercial organizations.Other Income, NetThe following is a comparison of other income, net for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) Other income, net Interest income, net $1.5 $0.1 $0.1 Other income, net 0.1 0.1 0.1 Other income, net $1.6 $0.2 $0.2 Other income, net consists of interest income earned on our cash equivalents and marketable securities, net of imputed interest expense paid under our capital leaseobligation, and other income recorded from a tax incentive award received in 2013. Net interest income increased $1.4 million for the year ended December 31,2016 compared to the year ended December 31, 2015, primarily due to an increased cash balance as a result of the January 2016 follow-on offering and thepurchases of short term interest bearing securities in 2016.Income Tax ExpenseWe maintain a full valuation allowance against our deferred tax assets and therefore did not recognize an income tax benefit for the year ended December 31, 2016or December 31, 2015. Income tax expense for the year ended December 31, 2014 reflects adjustments identified in 2014 related to the year ended December 31,2013 in the course of preparing the 2013 income tax returns.Liquidity and Capital ResourcesThrough December 31, 2016, we have raised an aggregate of $728.7 million to fund our operations, of which $207.8 million was non-equity funding through ourcollaboration agreements, $444.9 million was from the sale of common stock in our public offerings and $76.0 million was from the sale of redeemable convertiblepreferred stock. As of December 31, 2016, we had $242.2 million in cash, cash equivalents and marketable securities.On April 15, 2016, we entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, to sell, from time to time, shares of our common stock havingan aggregate sales price of up to $50.0 million through an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, underwhich Cowen would act as sales agent, which we refer to as the ATM Offering. The shares that may be sold under the Sales Agreement, if any, would be issuedand sold pursuant to our $250.0 million universal shelf registration statement on Form S-3 that was declared effective by the SEC on April 29, 2016. ThroughMarch 10, 2017, we sold 155,834 shares of Common Stock under the Sales Agreement, resulting in net proceeds of $1.9 million related to the ATM Offering. Weterminated the Sales Agreement with Cowen, effective March 10, 2017. 84Table of ContentsIn addition to our existing cash, cash equivalents and marketable securities, we may receive research and development co-funding and are eligible to earn asignificant amount of option exercise and milestone payments under our collaboration agreements. Our ability to earn these payments and the timing of earningthese payments is dependent upon the outcome of our research and development activities and is uncertain at this time.Funding RequirementsOur primary uses of capital are, and we expect will continue to be, clinical trial costs, third party research and development services, compensation and relatedexpenses, laboratory and related supplies, our potential future milestone payment obligations to Eisai and Roche Molecular under the amended Eisai collaborationagreement and Roche Molecular companion diagnostic agreement, legal and other regulatory expenses and general overhead costs.Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate theactual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieveprofitability. 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 debtfinancings and collaboration arrangements. Except for any obligations of our collaborators to make license, milestone or royalty payments under our agreementswith 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, theownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rightsof our existing common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting orrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional fundsthrough collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates orgrant 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 whenneeded, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and marketproduct candidates that we would otherwise prefer to develop and market ourselves.OutlookBased on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash, cashequivalents and marketable securities as of December 31, 2016, will be sufficient to fund our planned operating expenses and capital expenditure requirements intoat least the third quarter of 2018, without giving effect to any potential option exercise fees or milestone payments we may receive under our collaborationagreements. We have based this estimate on assumptions that may prove to be wrong, particularly as the process of testing drug candidates in clinical trials is costlyand the timing of progress in these trials is uncertain. As a result, we could use our capital resources sooner than we expect.Cash FlowsThe following is a summary of cash flows for the years ended December 31, 2016, 2015 and 2014: Year Ended December 31, 2016 2015 2014 (In millions) Net cash used in operating activities $(96.4) $(72.9) $(35.4) Net cash used in investing activities (165.4) (40.2) (2.2) Net cash provided by financing activities 131.4 131.3 104.1 85Table of ContentsNet Cash Used in Operating ActivitiesNet cash used in operating activities was $96.4 million during the year ended December 31, 2016 compared to $72.9 million during the year ended December 31,2015. The increase in net cash used in operating activities during year ended December 31, 2016 as compared to 2015 primarily relates to the net loss in the period,after adjusting for the $40.0 million payment made to Eisai in the prior year, which is classified as an investing cash outflow.Net cash used in operating activities for year ended December 31, 2016 primarily relates to our net loss of $110.2 million, partially offset by non-cash stock-basedcompensation of $10.6 million and depreciation of $1.6 million. The most significant items affecting working capital in the year ended December 31, 2016 includeincreased accrued expenses and prepaid expenses associated with the expansion of our clinical activities and the recognition of deferred revenue associated with theCelgene arrangement.Net cash used in operating activities was $72.9 million during the year ended December 31, 2015 compared to $35.4 million during the year ended December 31,2014. The increase in net cash used in operating activities for the year ended December 31, 2015 primarily resulted from higher non-equity cash receipts from ourcollaborations of $53.2 million in 2014 compared to $10.0 million in 2015. Net cash used in operating activities for fiscal year 2015 primarily relates to our net lossof $132.4 million less the impact of the $40.0 million upfront payment made to Eisai upon the execution of our amended and restated collaboration and licenseagreement in March 2015, which is classified as an investing activity in the consolidated statement of cash flows, the $10.0 million payment from Celgene as partof the July 2015 amended and restated agreement and non-cash stock-based compensation and depreciation, which increased $3.7 million to $11.3 millioncompared to fiscal 2014.Net Cash Used in Investing ActivitiesNet cash used in investing activities during the year ended December 31, 2016 reflects $229.9 million of purchases of available for sale securities, maturities/salesof available for sale securities of $65.1 million and $0.6 million of purchases of property and equipment during the period.Net cash used in investing activities during the year ended December 31, 2015, reflects the $40.0 million upfront payment made to Eisai upon the execution of ouramended and restated collaboration and license agreement, under which we reacquired worldwide rights, excluding Japan, to tazemetostat, as well as purchases ofproperty and equipment. Net cash used in investing activities for 2014 related solely to the purchase of property and equipment. Purchases of property andequipment in 2014 consisted principally of purchases to support expansion of and improvements in our technology infrastructure.Net Cash Provided by Financing ActivitiesNet cash provided by financing activities of $131.4 million during the year ended December 31, 2016 primarily reflects net cash received from our January 2016public offering of our common stock of $129.7 million as well as cash received from stock option exercises, cash proceeds from our ATM Offering and purchase ofshares under our employee stock purchase plan. This amount was offset in part by the payment of $0.6 million of principal on our capital lease obligation.Net cash provided by financing activities of $131.3 million during the year ended December 31, 2015 primarily reflects net cash received from our March 2015public offering of our common stock of $130.3 million as well as cash received from stock option exercises and the purchase of shares under our employee stockpurchase plan. This amount was offset in part by the payment of $0.4 million of principal on our capital lease obligation during the year ended December 31, 2015. 86Table of ContentsContractual Obligations and Contingent LiabilitiesThe following summarizes our significant contractual obligations as of December 31, 2016: Contractual Obligations Total Less than 1Year 1 to 3 Years 3 to 5 Years More than 5Years (In thousands) Real estate leases (1) $4,100 $2,898 $1,202 $— $— Capital leases (2) 776 665 111 — — Total obligations $4,876 $3,563 $1,313 $— $— (1)Real Estate Leases. Real estate leases represent future minimum lease payments under non-cancelable operating leases in effect as of December 31, 2016.(2)Capital leases relate to lease of computer hardware and related equipment. The minimum lease payments above do not include common area maintenancecharges or real estate taxes to the extent applicable.In addition to commitments under leasing arrangements described in the table above, as of December 31, 2016, we have committed to fund $12.0 million ofremaining development costs payable to Roche Molecular, expected to be paid through 2019 upon certain development and regulatory milestones, under anamended companion diagnostic agreement. In addition, the contractual obligations table does not include potential future milestones or royalties that we may berequired to make under license and collaboration agreements, including potential future milestones or royalties payable to Eisai under the amended collaborationand license agreement, due to the uncertainty of the occurrence of the events requiring payment under these agreements.We enter into contracts in the normal course of business with CROs for clinical and preclinical research studies, external manufacturers for product for use in ourclinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore arecancelable contracts and not included in the table of contractual obligations and commitments.Critical Accounting Policies and Use of EstimatesOur management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statementsrequires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets andliabilities as of the date of the balance sheets and the reported amounts of collaboration revenue and expenses during the reporting periods. We base our estimateson historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actualresults and outcomes may differ materially from our estimates, judgments and assumptions. We periodically review our estimates in light of changes incircumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the dateof 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 subjectiveestimates 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 thespecific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements which requiresignificant estimates and judgments are as follows:Revenue RecognitionWe recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have beenrendered; our price to the customer is fixed or determinable and 87Table of Contentscollectability is reasonably assured. The terms of our collaboration and license agreements typically contain multiple deliverables, which may include licenses, oroptions to obtain licenses, to compounds directed to specific HMT targets, referred to as exclusive licenses, as well as research and development activities to beperformed by us on behalf of the collaboration partner related to the licensed HMT targets. Payments that we may receive under these agreements include non-refundable license fees, option fees, extension fees, payments for research activities, payments based upon the achievement of specified milestones and royalties onany resulting net product sales.Multiple-Element Revenue Arrangements . Our collaborations primarily represent multiple-element revenue arrangements. To account for these transactions, wedetermine the elements, or deliverables, included in the arrangement and allocate arrangement consideration to the various elements based on each element’srelative selling price. The identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involvesignificant judgment, including consideration as to whether each delivered element has standalone value to the collaborator. We determine the estimated sellingprice for deliverables within each agreement using vendor-specific objective evidence of selling price, if available, or third party evidence of selling price if vendor-specific objective evidence is not available, or our best estimate of selling price, if neither vendor-specific objective evidence nor third party evidence is available.Determining the best estimate of selling price for a deliverable requires significant judgment. We typically use our best estimate of selling price to estimate theselling price for licenses to our proprietary technology, since we do not have vendor-specific objective evidence or third party evidence of selling price for thesedeliverables. In those circumstances where we apply our best estimate of selling price to determine the estimated selling price of a license to our proprietarytechnology, we consider market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well asinternally developed estimates that include assumptions related to the market opportunity, estimated development costs, probability of success and the time neededto commercialize a product candidate pursuant to the license. In validating our best estimate of selling price, we evaluate whether changes in the key assumptionsused to determine our best estimate of selling price will have a significant effect on the allocation of arrangement consideration between deliverables. We recognizeconsideration allocated to an individual element when all other revenue recognition criteria are met for that element.Our multiple-element revenue arrangements generally include the following: • Exclusive Licenses . The deliverables under our collaboration agreements generally include exclusive licenses to discover, develop, manufacture andcommercialize compounds with respect to one or more specified HMT targets. To account for this element of the arrangement, we evaluate whetherthe exclusive license has standalone value from the undelivered elements to the collaboration partner based on the consideration of the relevant factsand circumstances of each arrangement, including the research and development capabilities of the collaboration partner and other market participants.Arrangement consideration allocated to licenses may be recognized upon delivery of the license if facts and circumstances indicate that the license hasstandalone value apart from the undelivered elements, which generally include research and development services. Arrangement considerationallocated to licenses is deferred if facts and circumstances indicate that the delivered license does not have standalone value from the undeliveredelements.We have determined that some of our exclusive licenses lack standalone value apart from the related research and development services, and in thosecircumstances we recognize collaboration revenue from non-refundable exclusive license fees on a straight-line basis over the contracted or estimatedperiod of performance, which is generally the period over which the research and development services are to be provided. • Research and Development Services. The deliverables under our collaboration and license agreements generally include deliverables related toresearch and development services to be performed on behalf of the collaboration partner. As the provision of research and development services is apart of our central operations, when we are principally responsible for the performance of these services under the 88Table of Contents agreements, we recognize revenue on a gross basis for research and development services as those services are performed. • Option Arrangements. Our arrangements may provide a collaborator with the right to select a target for licensing either at the inception of thearrangement or within an initial pre-defined selection period, which may, in certain cases, include the right of the collaborator to extend the selectionperiod. Under these agreements, fees may be due to us at the inception of the arrangement as an upfront fee or payment, upon the exercise of an optionto acquire a license or upon extending the selection period as an extension fee or payment.The accounting for option arrangements is dependent on the nature of the options granted to the collaboration partner. Options are consideredsubstantive if, at the inception of the arrangement, we are at risk as to whether the collaboration partner will choose to exercise the options to secureexclusive licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, thebenefit the collaborator might obtain from the arrangement without exercising the options, the cost to exercise the options relative to the total upfrontconsideration and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options. Forarrangements under which the option to secure licenses is considered substantive, we do not consider the licenses to be deliverables at the inception ofthe arrangement. For arrangements where the option to secure licenses is not considered substantive, we consider the license to be a deliverable at theinception of the arrangement and, upon delivery of the license, would apply the multiple-element revenue arrangement criteria to the license and anyother deliverables to determine the appropriate revenue recognition. None of the options to secure exclusive licenses included in our collaborativearrangements have been determined to be substantive.Milestone Revenue . Our collaboration and license agreements generally include contingent milestone payments related to specified preclinical research anddevelopment milestones, clinical development milestones, regulatory milestones and sales-based milestones. Preclinical research and development milestones aretypically payable upon the selection of a compound candidate for the next stage of research and development. Clinical development milestones are typicallypayable when a product candidate initiates or advances in clinical trial phases or achieves defined clinical events, such as proof-of-concept. Regulatory milestonesare typically payable upon submission for marketing approval with regulatory authorities, upon receipt of actual marketing approvals for a compound or foradditional indications or upon the first commercial sale. Sales-based milestones are typically payable when annual sales reach specified levels.At the inception of each arrangement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis ofthe contingent nature of the milestone. This evaluation includes an assessment of whether: • the consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivereditem(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone; • the consideration relates solely to past performance; and • the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.We evaluate factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort andinvestment required to achieve the respective milestoneand whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.Non-refundable preclinical research and development, clinical development and regulatory milestones that are expected to be achieved as a result of our effortsduring the period of our performance obligations under the 89Table of Contentscollaboration and license agreements are generally considered to be substantive and are recognized as revenue upon the achievement of the milestone, assuming allother revenue recognition criteria are met. If not considered to be substantive, revenue from achievement of milestones is initially deferred and recognized over theremaining term of our performance obligations. Milestones that are not considered substantive because we do not contribute effort to their achievement arerecognized as revenue upon achievement, assuming all other revenue recognition criteria are met, as there are no undelivered elements remaining and no continuingperformance obligations on our part.Research and Development ExpensesResearch and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, facilitiesexpenses, overhead expenses, clinical trial and related clinical manufacturing expenses, fees paid to clinical research organizations and other outside expenses.Research and development costs are expensed as incurred if no planned alternative future use exists for the technology and if the payment is not payment for futureservices. We defer and capitalize our nonrefundable advance payments that are for research and development activities until the related goods are delivered or therelated services are performed. In circumstances where our collaboration and license agreements provide for equally co-funded global development under joint risksharing collaborations, amounts received from collaboration partners for such co-funding are recorded as a reduction to research and development expense.Accrued Research and Development ExpensesAs part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involvesreviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating thelevel of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majorityof our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expensesas of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of ourestimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to: • contract research organizations in connection with clinical trials; • investigative sites in connection with clinical trials; • vendors in connection with non-clinical development activities; and • vendors related to product manufacturing, development and distribution of clinical supplies.We generally accrue expenses related to research and development activities based on the services received and efforts expended pursuant to contracts withmultiple contract research organizations that conduct and manage clinical trials on our behalf as well as other vendors that provide research and developmentservices. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may beinstances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some ofthese contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimatethe time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services orthe level of effort varies from our estimate, we would adjust the accrual or prepaid accordingly.Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performeddiffer from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have beenno material differences from our estimates to the amount actually incurred. 90Table of ContentsStock-Based CompensationWe issue stock-based compensation awards to employees, including stock options and restricted stock, and offer an employee stock purchase plan. We measurestock-based compensation expense related to these awards based on the fair value of the award on the date of grant and recognize stock-based compensationexpense, less estimated forfeitures, on a straight-line basis over the requisite service period of the awards, which generally equals the vesting period. We haveselected the Black-Scholes option pricing model to determine the fair value of stock option awards which requires the input of various assumptions that requiremanagement to apply judgment and make assumptions and estimates, including: • the expected life of the stock option award, which we calculate using the simplified method as we have insufficient historical information regardingour stock options to provide a basis for estimate; • the expected volatility of the underlying common stock, which we estimate using a blended approach encompassing our historical experience and thehistorical volatility of a peer group of comparable publicly traded companies with product candidates in similar stages of development; • the expected risk-free interest rate based on the U.S. Treasury zero coupon rate with a remaining term approximating the expected term; and • the expected dividend yield of zero.Our assumptions may differ from those used in prior periods, and changes in the assumptions may have a significant impact on the fair value of future equityawards, which could have a material impact on our consolidated financial statements.The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.We estimate forfeitures for employee grants at the time of grant, and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from thoseestimates. Ultimately, the actual expense recognized over the vesting period will only represent those options that vest.Since our initial public offering, the exercise price per share of all option grants has been set at the closing price of our common stock on The NASDAQ GlobalMarket on the applicable date of grant, which our board of directors believes represents the fair value of our common stock.Going ConcernWe implemented Financial Accounting Standards Board Accounting Standards Update No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability toContinue as a Going Concern , beginning with this 2016 Annual Report on Form 10-K. We continually evaluate our ability to continue as a going concern withinone year of the date of issuance of financial statements in both our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Our evaluation entailsanalyzing forward looking budgets and forecasts for expectations of our cash needs, and comparing those needs to our current cash, cash equivalent and marketablesecurity balances.Acquired In-Process Research and DevelopmentWe record upfront payments that relate to the acquisition of a development-stage product candidate as research and development expense in the period in whichthey are incurred, provided that the acquired development-stage product candidate did not also include processes or activities that would constitute a business, theproduct candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. In the first quarter of 2015,we accounted for the upfront payment paid to Eisai in connection with the amended and restated collaboration and license agreement, pursuant to which wereacquired the worldwide rights, excluding Japan, to tazemetostat, as an acquisition of in-process research and development. 91Table of ContentsRecent Accounting PronouncementsFor detailed information regarding recently issued accounting pronouncements and the expected impact on our consolidated financial statements, see Note 2,Summary of Significant Accounting Policies—Recent Accounting Pronouncements , in the accompanying Notes to Consolidated Financial Statements included inItem 15. of Part IV of this Annual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosures about Market RiskThe market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As ofDecember 31, 2016, we had cash equivalents and available for sale securities of $242.2 million consisting of money market funds, corporate bonds, commercialpaper and government-related obligations. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S.interest rates. We estimate that a hypothetical 100-basis point change in market interest rates would impact the fair value of our investment portfolio as ofDecember 31, 2016 by $0.5 million.We contract with CROs and manufacturers globally. Transactions with these providers are predominantly settled in U.S. dollars and, therefore, we believe that wehave only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.Item 8. Financial Statements and Supplementary DataThe information required by this item may be found on pages F-2 through F-32 as listed below, including the quarterly information required by this item.INDEX Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Cash Flows F-5 Consolidated Statements of Stockholders’ Equity F-6 Notes to Consolidated Financial Statements F-7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls and ProceduresOur management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2016.In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefitrelationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that as ofDecember 31, 2016, our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our managementincluding our 92Table of Contentsprincipal executive officer and principal financial officer by others, particularly during the period in which this report was prepared and (2) effective, in that theyprovide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting isdefined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive andprincipal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes thosepolicies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of ourcompany; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of ourmanagement and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control—Integrated Framework (2013) . Based on its assessment, management believes that, as of December 31, 2016, our internal control over financial reporting iseffective based on those criteria.Changes in Internal Controls over Financial ReportingNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three monthsended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationPursuant to an agreement with Cowen, we terminated the Sales Agreement dated April 15, 2016 to which we were a party with Cowen, effective March 10, 2017.The Sales Agreement provided for the sale, from time to time, of shares of our common stock having an aggregate sales price of up to $50.0 million through an “atthe market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.On March 9, 2017, we announced that Robert Copeland, our President of Research and Chief Scientific Officer, will be retiring from the company on a date to bedetermined in the second quarter of 2017 to pursue advisory and other opportunities within the industry. 93Table of ContentsPART IIICertain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated by reference from our definitive proxy statementrelating to our 2017 annual meeting of stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, also referred to in thisAnnual Report on Form 10-K as our 2017 Proxy Statement, which we expect to file with the SEC within 120 days of the end of the fiscal year ended December 31,2016.Item 10. Directors, Executive Officers and Corporate GovernanceInformation regarding our directors, including the audit committee and audit committee financial experts, and executive officers and compliance with Section 16(a)of the Exchange Act will be included in our 2017 Proxy Statement and is incorporated herein by reference.We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees as required by NASDAQ governance rules and as definedby applicable SEC rules. Stockholders may locate a copy of our Code of Business Conduct and Ethics on our website at www.epizyme.com or request a copywithout charge from:Epizyme, Inc.Attention: Investor Relations400 Technology Square, 4 th FloorCambridge, MA 02139We will post to our website any amendments to the Code of Business Conduct and Ethics, and any waivers that are required to be disclosed by the rules of eitherthe SEC or NASDAQ.Item 11. Executive CompensationThe information required by this item regarding executive compensation will be included in our 2017 Proxy Statement and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for issuance underequity compensation plans will be included in our 2017 Proxy Statement and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item regarding certain relationships and related transactions and director independence will be included in our 2017 ProxyStatement and is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesThe information required by this item regarding principal accounting fees and services will be included in our 2017 Proxy Statement and is incorporated herein byreference. 94Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules (a)The following documents are included in this Annual Report on Form 10-K: 1.The following Report and Consolidated Financial Statements of the Company are included in this Annual Report:Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of Operations and Comprehensive LossConsolidated Statements of Cash FlowsConsolidated Statements of Stockholders’ EquityNotes to Consolidated Financial Statements 2.All financial schedules have been omitted because the required information is either presented in the consolidated financial statements or thenotes thereto or is not applicable or required. 3.The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Indeximmediately preceding the exhibits and are incorporated herein.Item 16. Form 10-K SummaryNone. 95Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized. Epizyme, Inc.By: /s/ Robert B. Bazemore Robert B. Bazemore President and Chief Executive OfficerDated: March 13, 2017Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated: Name Title Date/s/ Robert B. Bazemore President, Chief Executive Officer, Director March 13, 2017Robert B. Bazemore (Principal Executive Officer) /s/ Andrew E. Singer Executive Vice President of Finance andAdministration, Chief Financial Officer andTreasurer March 13, 2017Andrew E. Singer (Principal Financial and Accounting Officer) /s/ Andrew R. Allen Director March 13, 2017Andrew R. Allen, M.D., Ph.D. /s/ Kenneth Bate Director March 13, 2017Kenneth Bate /s/ Kevin T. Conroy Director March 13, 2017Kevin T. Conroy /s/ Carl Goldfischer Director March 13, 2017Carl Goldfischer, M.D. /s/ David M. Mott Director March 13, 2017David M. Mott /s/ Richard F. Pops Director March 13, 2017Richard F. Pops /s/ Beth Seidenberg Director March 13, 2017Beth Seidenberg, M.D. 96Table of ContentsEXHIBIT INDEX ExhibitNumber Description of Exhibit 3.1 Restated Certificate of Incorporation of the Registrant (1) 3.2 Amended and Restated Bylaws of the Registrant (2) 4.2 Amended and Restated Investor Rights Agreement dated as of April 2, 2012 (4) 10.1+ 2008 Stock Incentive Plan (4) 10.2+ Form of Incentive Stock Option Agreement under 2008 Stock Incentive Plan (4) 10.3+ Form of Nonstatutory Stock Option Agreement under 2008 Stock Incentive Plan (4) 10.4+ Form of Restricted Stock Agreement under 2008 Stock Incentive Plan (4) 10.5+ 2013 Stock Incentive Plan (2) 10.6+ Form of Incentive Stock Option Agreement under 2013 Stock Incentive Plan (2) 10.7+ Form of Nonstatutory Stock Option Agreement under 2013 Stock Incentive Plan (2) 10.8+ Form of Restricted Stock Agreement under 2013 Stock Incentive Plan (2) 10.9+ Form of Restricted Stock Unit Agreement under 2013 Stock Incentive Plan (12) 10.10+ 2013 Employee Stock Purchase Plan (2) 10.11+ Executive Severance and Change in Control Plan (as amended February 25, 2016 (16) 10.12+ Employment Offer Letter dated April 3, 2013 by and between the Registrant and Robert J. Gould, Ph.D. (2) 10.13+ Employment Offer Letter dated April 3, 2013 by and between the Registrant and Robert A. Copeland, Ph.D. (2) 10.14+ Employment Offer Letter dated September 8, 2014 by and between the Registrant and Peter T.C. Ho, M.D., Ph.D. (10) 10.15+ Employment Offer Letter dated January 28, 2015 by and between the Registrant and Andrew E. Singer (11) 10.16+ Employment Offer Letter dated between the Registrant and Robert Bazemore, dated August 5, 2015 (14) 10.17+ Employment Offer Letter between the Company and Matthew E. Ros, dated April 15, 2016 (18) 10.18+ Employment Offer Letter between the Company and Susan Graf, dated April 25, 2016 (21) 10.19 Form of Director and Officer Indemnification Agreement (2) 10.20† Collaboration and License Agreement dated as of April 1, 2011 by and between the Registrant and Eisai Co., Ltd. (3) 10.21† License and Collaboration Agreement dated as of April 2, 2012 by and between the Registrant and Celgene International Sàrl and CelgeneCorporation (3) 10.22† Companion Diagnostics Agreement dated as of December 18, 2012 between the Registrant and Eisai Co., Ltd. on the one side and RocheMolecular Systems, Inc. on the other side (3) 10.23† First Amendment to the Companion Diagnostics Agreement dated October 23, 2013 between the Registrant and Eisai Co. Ltd. On the one sideand Roche Molecular Systems, Inc. on the other side (6) 97Table of ContentsExhibitNumber Description of Exhibit 10.24 ☐ Second Amendment to the Companion Diagnostics Agreement dated November 16, 2015 between the Registrant and Eisai Co. Ltd. on the oneside and Roche Molecular Systems, Inc. on the other side (16) 10.25 Letter Agreement by and between the Registrant and Eisai Co., Ltd. dated as of December 21, 2012 relating to Companion DiagnosticsAgreement (4) 10.26 Amended and Restated Letter Agreement dated as of March 12, 2015 by and between the Registrant and Eisai Co., Ltd. relating to theCompanion Diagnostics Agreement (13) 10.27† Amended and Restated Collaboration and License Agreement dated as of March 12, 2015, by and between the Registrant and Eisai Co. Ltd. (13) 10.28 Lease Agreement dated as of June 15, 2012 between the Registrant and ARE-TECH Square, LLC (4) 10.29 Non-Employee Director Compensation Program (19) 10.30 Amendment to Lease Agreement dated as of September 30, 2013 between the Registrant and ARE-TECH Square, LLC (5) 10.31 Second Amendment to Lease Agreement dated as of May 18, 2016 between the Registrant and ARE-TECH Square, LLC (20) 10.32† Amended and Restated Collaboration and License Agreement dated as of July 8, 2015 by and between the Registrant and Celgene Corporationand Celgene RIVOT Ltd. (15) 10.33† Collaboration and License Agreement dated as of January 8, 2011 by and between the Registrant and Glaxo Group Limited (3) 10.34† Amendment to Collaboration and License Agreement dated as of July 23, 2013 by and between the Registrant and Glaxo Group Limited (7) 10.35† Amendment to Collaboration and License Agreement dated as of February 24, 2014 by and between the Registrant and Glaxo Group Limited (8) 10.36† Amendment to Collaboration and License Agreement dated as of March 18, 2014 by and between the Registrant and Glaxo Group Limited (8) 10.37† Amendment to Collaboration and License Agreement dated as of April 17, 2014 by and between the Registrant and Glaxo Group Limited (9) 10.38† Amendment to Collaboration and License Agreement dated as of October 1, 2014 by and between the Registrant and Glaxo Group Limited (12) 10.39 Consulting Agreement dated August 5, 2015 by and between the Registrant and Robert J. Gould, Ph.D. (14) 10.40 Sales Agreement dated as of April 15, 2016, by and between the Company and Cowen and Company, LLC (17) 21.1 Subsidiaries of the Registrant (4) 23.1 Consent of Ernst & Young LLP (21) 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. (21) 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. (21) 98Table of ContentsExhibitNumber Description of Exhibit 32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, by Robert B.Bazemore, President and Chief Executive Officer of the Company, and Andrew E. Singer, Executive Vice President of Finance andAdministration, Chief Financial Officer and Treasurer of the Company. (21)101.INS XBRL Instance Document101.SCH XBRL Schema Document101.CAL XBRL Calculation Linkbase Document101.LAB XBRL Labels Linkbase Document101.PRE XBRL Presentation Linkbase Document101.DEF XBRL Definition Linkbase Document +Management compensatory agreement.†Confidential treatment has been granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and ExchangeCommission.☐Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and ExchangeCommission.(1)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onJune 7, 2013.(2)Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-187892) filed with the Securities and Exchange Commission on April 26,2013.(3)Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-187982) filed with the Securities and Exchange Commission on May 13,2013.(4)Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-187982) filed with the Securities and Exchange Commission on April 18,2013.(5)Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 23, 2013.(6)Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-193569) filed with the Securities and Exchange Commission onJanuary 27, 2014.(7)Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-193569) filed with the Securities and Exchange Commission onJanuary 28, 2014.(8)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onApril 22, 2014.(9)Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2014.(10)Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2014.(11)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onFebruary 3, 2015.(12)Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2015.(13)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onMarch 16, 2015.(14)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onAugust 1, 2015.(15)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2015. 99Table of Contents(16)Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2016.(17)Incorporated by reference to the Registration Statement on Form S-3 (File No. 333-210774) filed with the Securities and Exchange Commission on April 15,2016.(18)Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-35945) filed with the Securities and Exchange Commission onMay 6, 2016.(19)Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2016.(20)Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2016.(21)Filed with this Annual Report on Form 10-K. 100Table of ContentsEPIZYME, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Cash Flows F-5 Consolidated Statements of Stockholders’ Equity F-6 Notes to Consolidated Financial Statements F-7 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersEpizyme, Inc.We have audited the accompanying consolidated balance sheets of Epizyme, Inc. (the Company) as of December 31, 2016 and 2015, and the relatedconsolidated statements of operations and comprehensive loss, cash flows and stockholders’ equity for each of the three years in the period ended December 31,2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Epizyme, Inc. atDecember 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, inconformity with U.S. generally accepted accounting principles./s/ Ernst & Young LLPBoston, MassachusettsMarch 13, 2017 F-2Table of ContentsEPIZYME, INC.CONSOLIDATED BALANCE SHEETS(Amounts in thousands except per share data) December 31,2016 December 31,2015 ASSETS Current Assets: Cash and cash equivalents $77,895 $208,323 Marketable securities 164,297 — Accounts receivable 23 262 Prepaid expenses and other current assets 6,457 4,478 Total current assets 248,672 213,063 Property and equipment, net 3,124 4,089 Restricted cash and other assets 645 751 Total Assets $252,441 $217,903 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $4,994 $4,653 Accrued expenses 16,007 11,335 Current portion of capital lease obligation 620 561 Current portion of deferred revenue — 1,900 Total current liabilities 21,621 18,449 Capital lease obligation, net of current portion 110 730 Deferred revenue, net of current portion 28,809 28,809 Other long-term liabilities 201 383 Commitments and contingencies (Note 7) Stockholders’ Equity: Common stock, $0.0001 par value; 125,000 shares authorized; 58,050 shares and 41,786 shares issued andoutstanding, respectively 6 4 Additional paid-in capital 555,473 412,989 Accumulated other comprehensive loss (106) — Accumulated deficit (353,673) (243,461) Total stockholders’ equity 201,700 169,532 Total Liabilities and Stockholders’ Equity $252,441 $217,903 See notes to consolidated financial statements. F-3Table of ContentsEPIZYME, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Amounts in thousands except per share data) Year Ended December 31, 2016 2015 2014 Collaboration revenue $8,007 $2,560 $41,411 Operating expenses: Research and development 91,461 111,209 75,595 General and administrative 28,372 23,900 20,866 Total operating expenses 119,833 135,109 96,461 Operating loss (111,826) (132,549) (55,050) Other income, net: Interest income, net 1,531 94 95 Other income, net 83 79 59 Other income, net 1,614 173 154 Loss before income taxes (110,212) (132,376) (54,896) Income tax expense — — 109 Net loss $(110,212) $(132,376) $(55,005) Other Comprehensive loss: Unrealized loss on available for sale securities (106) — — Comprehensive loss $(110,318) $(132,376) $(55,005) Loss per share allocable to common stockholders: Basic $(1.93) $(3.32) $(1.67) Diluted $(1.93) $(3.32) $(1.67) Weighted average shares outstanding: Basic 57,126 39,839 33,027 Diluted 57,126 39,839 33,027 See notes to consolidated financial statements. F-4Table of ContentsEPIZYME, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands) Year Ended December 31, 2016 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(110,212) $(132,376) $(55,005) Adjustments to reconcile net loss to net cash used in operating activities: Acquired in-process research and development — 40,000 — Depreciation and amortization 1,589 1,419 742 Stock-based compensation 10,568 9,849 6,864 Amortization of discount on investments (51) — — Loss on disposal of property and equipment — 27 2 Changes in operating assets and liabilities: Accounts receivable 239 1,813 31,592 Prepaid expenses and other current assets (1,542) (1,638) (419) Accounts payable 341 (3,647) 3,611 Accrued expenses 4,673 4,292 411 Deferred revenue (1,900) 7,558 (23,721) Restricted cash and other assets 106 (178) 606 Other long-term liabilities (182) (44) (46) Net cash used in operating activities (96,371) (72,925) (35,363) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available for sale securities (229,887) — — Proceeds from sales/maturities of available for sale securities 65,097 — — Acquisition of in-process research and development — (40,000) — Purchases of property and equipment (624) (183) (2,216) Net cash used in investing activities (165,414) (40,183) (2,216) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from public offering of common stock, net of commissions 130,438 130,712 101,283 Payment of common stock offering costs (483) (367) (649) Proceeds from reimbursement of common stock offering costs — — 269 Payment under capital lease obligation (561) (441) — Proceeds from stock options exercised 1,589 996 2,736 Issuance of shares under employee stock purchase plan 374 436 454 Excess tax benefit from stock option plan — — 17 Net cash provided by financing activities 131,357 131,336 104,110 Net (decrease) increase in cash and cash equivalents (130,428) 18,228 66,531 Cash and cash equivalents, beginning of period 208,323 190,095 123,564 Cash and cash equivalents, end of period $77,895 $208,323 $190,095 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Equipment acquired under capital lease — 1,732 — Cash paid for income taxes — — 963 See notes to consolidated financial statements. F-5Table of ContentsEPIZYME, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(Amounts in thousands except share data) Common Stock TreasuryStock AdditionalPaid-In Capital AccumulatedDeficit Accumulated Other ComprehensiveLoss Total Stockholders’Equity Shares Amount Balance at December 31, 2013 28,494,447 $3 $— $160,390 $(56,080) $— $104,313 Issuance of common stock (net of commissions and offeringcosts of $380) 3,673,901 — — 100,903 — — 100,903 Exercise of stock options 2,239,643 — — 2,736 — — 2,736 Stock-based compensation — — — 6,864 — — 6,864 Excess tax benefit from stock option plan — — — 17 — — 17 Issuance of shares under employee stock purchase plan 18,021 — — 454 — — 454 Net loss — — — — (55,005) — (55,005) Balance at December 31, 2014 34,426,012 $3 $— $271,364 $(111,085) $— $160,282 Issuance of common stock (net of commissions and offeringcosts of $367) 6,701,448 1 — 130,344 — — 130,345 Exercise of stock options 634,760 — — 996 — — 996 Stock-based compensation — — — 9,849 — — 9,849 Issuance of shares under employee stock purchase plan 23,554 — — 436 — — 436 Net loss — — — — (132,376) — (132,376) Balance at December 31, 2015 41,785,774 $4 $— $412,989 $(243,461) $— $169,532 Issuance of common stock (net of commissions and offeringcosts of $483) 15,420,220 2 — 129,953 — — 129,955 Exercise of stock options 788,097 — — 1,589 — — 1,589 Stock-based compensation — — — 10,568 — — 10,568 Issuance of shares under employee stock purchase plan 56,189 — — 374 — — 374 Unrealized loss on available for sale securities — — — — — (106) (106) Net loss — — — — (110,212) — (110,212) Balance at December 31, 2016 58,050,280 $6 $— $555,473 $(353,673) $(106) $201,700 See notes to consolidated financial statements. F-6Table of ContentsEPIZYME, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. The CompanyEpizyme, Inc. (collectively referred to with its wholly owned, controlled subsidiary, Epizyme Securities Corporation, as “Epizyme” or the “Company”) is a clinicalstage biopharmaceutical company that discovers, develops and plans to commercialize novel epigenetic therapies for patients with cancer and other diseases. TheCompany’s lead product candidate, tazemetostat, is a potent and selective inhibitor of the EZH2 HMT, an enzyme that plays an important role in various cancers.The Company owns the global development and commercialization rights to tazemetostat outside of Japan. Eisai Co. Ltd (“Eisai”) holds the rights to develop andcommercialize tazemetostat in Japan, and holds a limited right of first negotiation for the rest of Asia.The Company has additional programs in development, including pinometostat, a clinical program that is subject to a collaboration with Celgene Corporation andCelgene RIVOT Ltd., an affiliate of Celgene Corporation (“Celgene”) (refer to Note 9, Collaborations ), three preclinical programs for small molecule HMTinhibitors that are subject to a collaboration with Celgene, one clinical and two preclinical programs for small molecule HMT inhibitors that are subject to acollaboration with Glaxo Group Limited, an affiliate of GlaxoSmithKline (“GSK”) (refer to Note 9, Collaborations ), and multiple novel targets for which theCompany retains worldwide global development and commercialization rights.Through December 31, 2016, the Company has raised an aggregate of $728.7 million to fund its operations, of which $207.8 million was non-equity fundingthrough its collaboration agreements, $444.9 million was from the sale of common stock in the Company’s public offerings and $76.0 million was from the sale ofredeemable convertible preferred stock in private financings prior to the Company’s initial public offering in May 2013. As of December 31, 2016, the Companyhad $242.2 million in cash, cash equivalents and marketable securities.The Company commenced active operations in early 2008. Since its inception, the Company has generated an accumulated deficit of $353.7 million throughDecember 31, 2016 and will require substantial additional capital to fund its research and development. The Company is subject to risks common to companies inthe biotechnology industry, including, but not limited to, risks of failure of clinical trials and preclinical studies, the need to obtain additional financing to fund thefuture development of tazemetostat and the rest of its pipeline, the need to obtain marketing approval for its product candidates, the need to successfullycommercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance withgovernment regulations, development by competitors of technological innovations and ability to transition from pilot-scale manufacturing to large-scale productionof products.2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly owned, controlled subsidiary, Epizyme Securities Corporation. Allintercompany transactions and balances of subsidiaries have been eliminated in consolidation.Use of EstimatesThe preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management tomake estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, as of thedate of the consolidated financial statements, and the reported amounts of collaboration revenue and expenses during the reporting period. Actual results andoutcomes may differ materially from management’s estimates, judgments and assumptions. F-7Table of ContentsSubsequent EventsThe Company considers events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued to provideadditional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company evaluated all events and transactions throughthe date these financial statements were filed with the Securities and Exchange Commission.Cash and cash equivalentsThe Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. Cash andcash equivalents are comprised of funds in money market accounts, commercial paper and corporate notes.Marketable securitiesThe Company classifies marketable securities with a remaining maturity when purchased of greater than three months as available for sale. The Company considersall available for sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and thereforeclassifies all securities with maturity dates beyond 90 days at the date of purchase as current assets within the consolidated balance sheets. Available for salesecurities are maintained by the Company’s investment managers and may consist of commercial paper, high-grade corporate notes, U.S. Treasury securities, U.S.government agency securities, and certificates of deposit. Available for sale securities are carried at fair value with the unrealized gains and losses included in othercomprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted tointerest income and/or expense over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included inother income (expense).If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the declineis “other-than-temporary” and, if so, mark the investment to market through a charge to the Company’s statement of operations and comprehensive loss.The following table summarizes the available for sale securities held at December 31, 2016 (in thousands): Description Amortized Cost UnrealizedGains UnrealizedLosses FairValue Commercial paper $68,407 $— $(32) $68,375 Corporate notes 70,489 — (81) 70,408 U.S. Treasuries 25,507 7 — 25,514 Total $164,403 $7 $(113) $164,297 The Company did not hold any available for sale securities prior to the second quarter of 2016. Certain short-term debt securities with original maturities of lessthan 90 days are included in cash and cash equivalents within the consolidated balance sheets and are not included in the tables above.The amortized cost of available for sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At December 31, 2016, thebalance in the Company’s accumulated other comprehensive loss was composed solely of activity related to the Company’s available for sale marketable securities.There was less than $0.1 million of realized losses recognized on the sale of available for sale securities during the year ended December 31, 2016.The aggregate fair value of available for sale securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2016was $128.8 million. The aggregate unrealized loss for those F-8Table of Contentssecurities in an unrealized loss position for less than twelve months as of December 31, 2016 was $0.1 million. The Company determined that there was no materialchange in the credit risk of any of its investments. As a result, the Company determined it did not hold any investments with any other-than-temporary impairmentas of December 31, 2016. The weighted average maturity of the Company’s portfolio was approximately three months at December 31, 2016.Fair Value MeasurementsThe Financial Accounting Standards Board (“FASB”) Codification Topic 820, Fair Value Measurements and Disclosures, requires the use of valuationtechniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevantinformation generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convertfuture amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would berequired to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. GAAP also establishes a fair valuehierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fairvalue. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities.Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or otherinputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The Company’s financial instruments as of December 31, 2016 consisted primarily of cash and cash equivalents, marketable securities and accounts receivable andaccounts payable. The Company’s financial instruments as of December 31, 2015 consisted primarily of cash and cash equivalents, accounts receivable andaccounts payable. As of December 31, 2016 and December 31, 2015, the Company’s financial assets recognized at fair value consisted of the following: Fair Value as of December 31, 2016 Total Level 1 Level 2 Level 3 (In thousands) Cash equivalents $62,854 $59,862 $2,992 $— Marketable securities: Commercial paper 68,375 — 68,375 — Corporate notes 70,408 — 70,408 — U.S. government agency securities and treasuries 25,514 — 25,514 — Total $227,151 $59,862 $167,289 $— Fair Value as of December 31, 2015 Total Level 1 Level 2 Level 3 (In thousands) Cash equivalents $197,023 $197,023 $— $— Total $197,023 $197,023 $— $— Cash equivalents and marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizingthird-party pricing services or other market observable data. F-9Table of ContentsThe Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 of the fair value hierarchybecause they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The Company measures its marketable securities atfair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. The pricing services used by management utilize industrystandard valuation models, including both income and market based approaches and observable market inputs to determine the fair value of marketable securities.Going ConcernThe Company adopted the requirements of FASB Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability toContinue as a Going Concern , on December 31, 2016. At each reporting period, the Company evaluates whether there are conditions or events that raisesubstantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements in both its QuarterlyReports on Form 10-Q and Annual Reports on Form 10-K are issued. The Company is required to make certain additional disclosures if it concludes substantialdoubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a goingconcern.The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs, and comparing those needsto the current cash, cash equivalent and marketable security balances. After considering the Company’s current research and development plans and the timingexpectations related to the progress of its programs, and after considering its existing cash, cash equivalents and marketable securities as of December 31, 2016, theCompany did not identify conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the datethese financial statements were issued.Accounts ReceivableAccounts receivable are amounts due from collaboration partners as a result of research and development services provided, reimbursements under equally co-funded global development arrangements or milestones achieved but not yet paid. The Company considered the need for an allowance for doubtful accounts andhas concluded that no allowance was needed as of December 31, 2016 or 2015, as the estimated risk of loss on its accounts receivable was determined to beminimal.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk include cash, cash equivalents, marketable securities and accountsreceivable. The Company attempts to minimize the risks related to cash, cash equivalents and marketable securities by working with highly rated financialinstitutions that invest in a broad and diverse range of financial instruments as defined by the Company. The Company has established guidelines relative to creditratings and maturities intended to safeguard principal balances and maintain liquidity. The Company maintains its funds in accordance with its investment policy,which defines allowable investments, specifies credit quality standards and is designed to limit the Company’s credit exposure to any single issuer.Accounts receivable represent amounts due from collaboration partners. The Company monitors economic conditions to identify facts or circumstances that mayindicate that any of its accounts receivable are at risk of collection.Acquired In-Process Research and DevelopmentThe Company records upfront payments that relate to the acquisition of a development-stage product candidate as research and development expense in the periodin which they are incurred, provided that the acquired F-10Table of Contentsdevelopment-stage product candidate did not also include processes or activities that would constitute a business, the product candidate has not achieved regulatoryapproval for marketing and, absent obtaining such approval, has no alternative future use. In the first quarter of 2015, the Company accounted for the upfrontpayment paid to Eisai Co., Ltd. (“Eisai”) in connection with the amended and restated collaboration and license agreement, pursuant to which the Companyreacquired the worldwide rights, excluding Japan, to tazemetostat, as in-process research and development expense.Property and EquipmentThe Company records property and equipment at cost. Property and equipment acquired under a capital lease is recorded at the lesser of the present value of theminimum lease payments under the capital lease or the fair value of the leased property at lease inception. The Company calculates depreciation and amortizationusing the straight-line method over the following estimated useful lives: Asset Category Useful LivesLaboratory equipment 5 - 20 yearsOffice furniture and equipment 3 - 10 yearsLeasehold improvements 3 - 10 years or term of respective lease, if shorterAmortization of capital lease assets is included in depreciation expense. The Company capitalizes expenditures for new property and equipment and improvementsto existing facilities and charges the cost of maintenance to expense. The Company eliminates the cost of property retired or otherwise disposed of, along with thecorresponding accumulated depreciation, from the related accounts, and the resulting gain or loss is reflected in the results of operations.Impairment of Long-Lived AssetsThe Company reviews long-lived assets to be held and used, including property and equipment, for impairment whenever events or changes in circumstancesindicate that the carrying amount of the assets or asset group may not be recoverable.Evaluation of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset group and its eventual disposition.In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset or asset group, the assets are written down to theirestimated fair values. No such impairments were recorded during 2016, 2015 or 2014.Income TaxesThe Company records deferred income taxes to recognize the effect of temporary differences between tax and financial statement reporting. The Companycalculates the deferred taxes using enacted tax rates expected to be in place when the temporary differences are realized and records a valuation allowance to reducedeferred tax assets if it is determined that it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company considers manyfactors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results, expectations of future taxable income,carryforward periods available and other relevant factors. The Company records changes in the required valuation allowance in the period that the determination ismade.The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts,circumstances and information available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, theCompany records the largest amount of tax benefit with a greater than 50.0% likelihood of being realized upon ultimate settlement with a taxing authority havingfull knowledge of all relevant information. For those income tax F-11Table of Contentspositions where it is not more likely than not that a tax benefit will be sustained, the Company does not recognize a tax benefit in the financial statements. TheCompany records interest and penalties related to uncertain tax positions, if applicable, as a component of income tax expense. Refer to Note 6, Income Taxes , foradditional information regarding the Company’s income taxes.Revenue RecognitionThe Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services havebeen rendered; the Company’s price to the customer is fixed or determinable and collectability is reasonably assured.The Company has entered into collaboration and license agreements to discover, develop, manufacture and commercialize compounds directed to specific HMTtargets. The terms of these agreements typically contain multiple deliverables, which may include: (i) licenses, or options to obtain licenses, to compounds directedto specific HMT targets (referred to as “exclusive licenses”) and (ii) research and development activities to be performed on behalf of the collaboration partnerrelated to the licensed HMT targets. Payments to the Company under these agreements may include non-refundable license fees, option fees, exercise fees,payments for research activities, payments based upon the achievement of certain milestones and royalties on any resulting net product sales.Multiple-Element Revenue Arrangements. The Company’s collaborations primarily represent multiple-element revenue arrangements. To account for thesetransactions, the Company determines the elements, or deliverables, included in the arrangement and allocates arrangement consideration to the various elementsbased on each element’s relative selling price. The identification of individual elements in a multiple-element arrangement and the estimation of the selling price ofeach element involves significant judgment, including consideration as to whether each delivered element has standalone value to the collaborator. The Companydetermines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (“VSOE”) of selling price, if available, orthird party evidence of selling price if VSOE is not available, or the Company’s best estimate of selling price, if neither VSOE nor third party evidence is available.Determining the best estimate of selling price for a deliverable requires significant judgment. The Company typically uses its best estimate of a selling price toestimate the selling price for licenses to its proprietary technology, since it often does not have VSOE or third party evidence of selling price for these deliverables.In those circumstances where the Company applies its best estimate of selling price to determine the estimated selling price of a license to its proprietarytechnology, it considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well as internallydeveloped estimates that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed tocommercialize a product candidate pursuant to the license. In validating its best estimate of selling price, the Company evaluates whether changes in the keyassumptions used to determine its best estimate of selling price will have a significant effect on the allocation of arrangement consideration between deliverables.The Company recognizes consideration allocated to an individual element when all other revenue recognition criteria are met for that element.The Company’s multiple-element revenue arrangements generally include the following: • Exclusive Licenses —The deliverables under the Company’s collaboration agreements generally include exclusive licenses to discover, develop,manufacture and commercialize compounds with respect to one or more specified HMT targets. To account for this element of the arrangement,management evaluates whether the exclusive license has standalone value from the undelivered elements to the collaboration partner based on theconsideration of the relevant facts and circumstances of each arrangement, including the research and development capabilities of the collaborationpartner. The Company may recognize arrangement consideration allocated to licenses upon delivery of the license if facts and circumstances indicatethat the license has standalone value from the undelivered F-12Table of Contents elements, which generally include research and development services. The Company defers arrangement consideration allocated to licenses if factsand circumstances indicate that the delivered license does not have standalone value from the undelivered elements. The Company has determined thatcertain of its exclusive licenses lack standalone value apart from the related research and development services and is therefore recognizingcollaboration revenue from non-refundable exclusive license fees on a straight-line basis over the contracted or estimated period of performance,which is generally the period over which the research and development services are to be provided. • Research and Development Services —The deliverables under the Company’s collaboration and license agreements generally include deliverablesrelated to research and development services to be performed by the Company on behalf of the collaboration partner. As the provision of research anddevelopment services is a part of the Company’s central operations, when the Company is principally responsible for the performance of these servicesunder the agreements, the Company recognizes revenue on a gross basis for research and development services as those services are performed. • Option Arrangements —The Company’s arrangements may provide a collaborator with the right to select a target for licensing either at the inceptionof the arrangement or within an initial pre-defined selection period, which may, in certain cases, include the right of the collaborator to extend theselection period. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement as an upfront fee or payment,(ii) upon the exercise of an option to acquire a license or (iii) upon extending the selection period as an extension fee or payment.The accounting for option arrangements is dependent on the nature of the options granted to the collaboration partner. Options are consideredsubstantive if, at the inception of the arrangement, the Company is at risk as to whether the collaboration partner will choose to exercise the options tosecure exclusive licenses. Factors that the Company considers in evaluating whether options are substantive include the overall objective of thearrangement, the benefit the collaborator might obtain from the arrangement without exercising the options, the cost to exercise the options relative tothe total upfront consideration and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercisingthe options. For arrangements under which the option to secure licenses is considered substantive, the Company does not consider the licenses to bedeliverables at the inception of the arrangement. For arrangements under which the option to secure licenses is not considered substantive, theCompany considers the license to be a deliverable at the inception of the arrangement and, upon delivery of the license, would apply the multiple-element revenue arrangement criteria to the license and any other deliverables to determine the appropriate revenue recognition. None of the options tosecure exclusive licenses included in the Company’s collaborative arrangements have been determined to be substantive.Milestone Revenue. The Company’s collaboration and license agreements generally include contingent milestone payments related to specified preclinical researchand development milestones, clinical development milestones, regulatory milestones and sales-based milestones. Preclinical research and development milestonesare typically payable upon the selection of a compound candidate for the next stage of research and development. Clinical development milestones are typicallypayable when a product candidate initiates or advances in clinical trial phases or achieves defined clinical events such as proof-of-concept. Regulatory milestonesare typically payable upon submission for marketing approval with regulatory authorities or upon receipt of actual marketing approvals for a compound, approvalsfor additional indications, or upon the first commercial sale. Sales-based milestones are typically payable when annual sales reach specified levels.At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties onthe basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (i) theentity’s performance to achieve the milestone or (ii) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from theentity’s performance to achieve the milestone; (b) the consideration relates F-13Table of Contentssolely to past performance; and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Companyevaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort andinvestment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in thearrangement in making this assessment.The Company generally considers non-refundable preclinical research and development, clinical development and regulatory milestones that the Company expectsto be achieved as a result of the Company’s efforts during the period of the Company’s performance obligations under the collaboration and license agreements tobe substantive and recognizes them as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. If not considered tobe substantive, the Company initially defers milestones and recognizes them over the remaining term of the Company’s performance obligations. Milestones thatare not considered substantive because the Company does not contribute effort to the achievement of such milestones are generally achieved after the period of theCompany’s performance obligations and are recognized as revenue upon achievement, assuming all other revenue recognition criteria are met, as there are noundelivered elements remaining and no continuing performance obligations.Research and Development ExpensesResearch and development expenses are expensed as incurred. Research and development expenses are comprised of costs incurred in providing research anddevelopment activities, including salaries and benefits, facilities costs, overhead costs, contract research and development services, and other outside costs.Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has beenperformed or when the goods have been received rather than when the payment is made.External research and development expenses associated with the Company’s programs include clinical trial site costs, clinical manufacturing costs, costs incurredfor consultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support of the clinical andpreclinical programs. Internal costs of the Company’s clinical programs include salaries, stock-based compensation, and the portion of the Company’s facility costsallocated to research and development expense. When third-party service providers’ billing terms do not coincide with the Company’s period-end, the Company isrequired to make estimates of its obligations to those third parties, including clinical trial and pharmaceutical development costs, contractual services costs andcosts for supply of its drug candidates incurred in a given accounting period and record accruals at the end of the period. The Company bases its estimates on itsknowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third-party service contract, where applicable.The Company generally accrues expenses related to research and development activities based on the services received and efforts expended pursuant to contractswith multiple contract research organizations that conduct and manage clinical trials, as well as other vendors that provide research and development services. Thefinancial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances inwhich payments made to vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of thesecontracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, the Companyestimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance ofservices or the level of effort varies from estimates, the Company would adjust the accrual or prepaid accordingly in future periods. F-14Table of ContentsStock-Based CompensationThe Company measures employee stock-based compensation based on the grant date fair value of the stock-based compensation award. The Company grants stockoptions at exercise prices equal to the fair value of the Company’s common stock on the date of grant, based on observable market prices.The Company recognizes employee stock-based compensation expense, less estimated forfeitures, on a straight-line basis over the requisite service period of theawards. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates.Refer to Note 10, Employee Benefit Plans , for additional information regarding the measurement and recognition of expense related to the Company’s stock-basedcompensation awards.Earnings (Loss) per ShareThe Company computes basic earnings (loss) per share by dividing income (loss) allocable to common stockholders by the weighted average number of shares ofcommon stock outstanding. During periods of income, the Company allocates participating securities a proportional share of income determined by dividing totalweighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). TheCompany’s restricted stock and, prior to its automatic conversion, redeemable convertible preferred stock participate in any dividends declared by the Companyand are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share duringperiods of income. During periods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in thelosses of the Company. The Company computes diluted earnings (loss) per share after giving consideration to the dilutive effect of stock options that areoutstanding during the period, except where such non-participating securities would be anti-dilutive. Refer to Note 11, Loss per Share , for the Company’scalculation of loss per share for the periods presented.Segment InformationThe Company operates as one reportable business segment: the discovery and development of novel epigenetic therapies for patients with cancer and otherdiseases.Recent Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers . ASU 2014-09 amends Accounting Standards Codification (“ASC”)605, Revenue Recognition , by outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Inaddition, the FASB recently issued ASUs 2016-10 and 2016-12, which provide clarifying amendments to ASU 2014-09. ASU 2014-09 and its related amendmentswill be effective for the Company for interim and annual periods beginning after December 15, 2017, with early adoption permitted for periods beginning afterDecember 15, 2016. The Company expects to adopt ASU 2014-09, as amended, effective January 1, 2018. The Company plans on utilizing the modifiedprospective approach to implementing this standard and is in the process of evaluating its collaboration agreements with Celgene, GSK and Eisai (as it relates to thereceipt of royalties on the sale of any EZH2 product in Japan) to determine the impact the adoption of these ASUs may have on its consolidated financialstatements.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires lessees to recognize a right-of-use asset and lease liability for most leasearrangements. The new standard is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company iscurrently evaluating the potential changes from this ASU to the Company’s future financial reporting and disclosures. F-15Table of ContentsIn March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting . The standard will revise accounting for share-basedcompensation arrangements, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in thestatement of cash flows. Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the incomestatement when the awards vest or are settled. The amendments also remove the requirement to delay the recognition of an excess tax benefit until it reducescurrent taxes payable. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other incometax cash flows. The standard also allows the Company to repurchase more of an employee’s shares for tax withholding purposes without triggering liabilityaccounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flowsstatement, and provides an accounting policy election to account for forfeitures as they occur. ASU 2016-09 is effective for public companies for annual reportingperiods beginning after December 15, 2016, including interim periods within those annual reporting periods with all adjustments to be reflected as of the beginningof the fiscal year of adoption; however, early adoption is permitted. The Company has evaluated the impact of ASU 2016-09 and expects that when it adopts thisstandard for the annual reporting period beginning January 1, 2017, it will recognize previously unrecognized excess tax benefits using the modified retrospectivetransition method, which the Company expects will result in a cumulative increase of approximately $23.0 million to $27.0 million to deferred tax assets and thevaluation allowance. The Company does not expect the implementation of the standard to materially impact its future stock-based compensation expense.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“Topic 230”) . The newstandard clarifies certain aspects of the statement of cash flows, including the classification of contingent consideration payments made after a businesscombination, the clarification of restricted cash, and several clarifications not currently applicable to the Company. The new standard also clarifies that an entityshould determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. Insituations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriateclassification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The new standard will be effective for theCompany on January 1, 2018. The adoption of this standard is not expected to have a material impact on the Company’s consolidated statements of cash flows.In November 2016, the FASB issued ASU 2016-18, Restricted Cash , or ASU 2016-18. The amendments in ASU 2016-18 require an entity to reconcile andexplain the period-over-period change in total cash, cash equivalents and restricted cash within its statements of cash flows. ASU 2018-18 is effective for fiscalyears, and interim periods within, beginning after December 15, 2017. Early adoption is permitted. A reporting entity must apply the amendments in ASU 2016-18using a full retrospective approach. The Company is currently evaluating the impact the adoption of the ASU will have on its consolidated financial statements. F-16Table of Contents3. Property and Equipment, netProperty and equipment, net consists of the following: December 31, 2016 2015 (In thousands) Laboratory equipment $3,691 $3,468 Computer and office equipment, furniture (1) 4,495 4,848 Leasehold improvements 464 473 Property and equipment 8,650 8,789 Less: accumulated depreciation and amortization (5,526) (4,700) Property and equipment, net $3,124 $4,089 (1)In 2015, the Company acquired $1.7 million of computer hardware and equipment, pursuant to a capital lease, the term of which expires in February 2018.Accumulated depreciation related to these assets totaled $1.1 million and $0.5 million as of December 31, 2016 and 2015, respectively.Depreciation and amortization expense was $1.6 million, $1.4 million and $0.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.4. Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consisted of the following: December 31, 2016 2015 (In thousands) Prepaid clinical and manufacturing costs $3,666 $2,400 Interest receivable on available for sale securities 295 — Other prepaid expenses and other receivables 2,496 2,078 Total prepaid expenses and other current assets $6,457 $4,478 5. Accrued ExpensesAccrued expenses consisted of the following: December 31, 2016 2015 (In thousands) Employee compensation and benefits $4,100 $3,314 Research and development expenses 10,925 6,518 Professional services and other 982 1,503 Accrued expenses $16,007 $11,335 6. Income TaxesThe Company’s losses before income taxes consist solely of domestic losses. The Company did not have income tax expense for the years ended December 31,2016 and 2015. Income tax expense for the year ended December 31, 2014 reflects adjustments identified in 2014 related to the year ended December 31, 2013 inthe course of preparing the 2013 income tax returns. The Company had no deferred income tax expense for the years ended December 31, 2016, 2015 or 2014. F-17Table of ContentsA reconciliation of the federal statutory income tax rate and the Company’s effective income tax rate is as follows: Year Ended December 31, 2016 2015 2014 Federal statutory income tax rate 34.0% 34.0% 34.0% State income taxes 4.5 5.2 4.9 Research and development and other tax credits 3.3 1.8 13.6 Permanent items (1.9) (1.2) (5.2) Change in valuation allowance (40.1) (40.0) (44.3) Return-to-provision adjustments — — (3.1) Change in deferred taxes 0.2 0.2 — Other 0.0 — (0.1) Effective income tax rate 0.0% 0.0% (0.2)% Deferred Tax Assets (Liabilities)The Company’s deferred tax assets (liabilities) consist of the following: December 31, 2016 2015 (In thousands) Deferred tax assets: Net operating loss carryforwards $94,390 $57,005 Research and development and other credit carryforwards 18,055 14,112 Capitalized start-up costs 1,899 2,111 Capitalized research and development costs 154 258 Deferred revenue 11,231 8,475 Accruals and allowances 1,435 1,233 Eisai license payment 14,035 15,155 Other 5,607 4,275 Gross deferred tax assets 146,806 102,624 Deferred tax asset valuation allowance (146,548) (102,370) Total deferred tax assets 258 254 Deferred tax liabilities: Depreciation and other (258) (254) Total deferred tax liabilities (258) (254) Net deferred tax asset (liability) $— $— The Company evaluated the expected recoverability of its net deferred tax assets as of December 31, 2016 and 2015 and determined that there was insufficientpositive evidence to support the recoverability of these net deferred tax assets, concluding it is more likely than not that its net deferred tax assets would not berealized in the future; therefore, the Company has provided a full valuation allowance against its net deferred tax asset balance as of December 31, 2016 and 2015.The valuation allowance increased by $44.2 million in 2016 compared to 2015.As of December 31, 2016, the Company had operating loss carryforwards of approximately $305.6 million and $302.5 million available to offset future taxableincome for United States federal and state income tax purposes, F-18Table of Contentsrespectively. The U.S. federal tax operating loss carryforwards expire commencing in 2029. The state tax operating loss carryforwards expire commencing in 2030.Additionally, as of December 31, 2016 the Company had research and development tax credit carryforwards of approximately $5.2 million and $1.9 millionavailable to be used as a reduction of federal income taxes and state income taxes, respectively, which expire at various dates from 2024 through 2036, as well asfederal orphan drug tax credit carryforwards of $11.6 million, which would expire at various dates from 2033 through 2036, and a $0.4 million federal alternativeminimum tax credit carryforward, which comprises approximately $0.4 million related to excess tax benefits that have been included in the gross deferred tax assetreflected for research and development and other credit carryforwards. This amount will be recorded as an increase to additional paid-in capital on the consolidatedbalance sheet when the excess benefits are realized. The Company’s ability to use its operating loss carryforwards and tax credits to offset future taxable income issubject to restrictions under Section 382 of the U.S. Internal Revenue Code (the “Internal Revenue Code”). These restrictions may limit the future use of theoperating loss carryforwards and tax credits if certain ownership changes described in the Internal Revenue Code occur. Future changes in stock ownership mayoccur that would create further limitations on the Company’s use of the operating loss carryforwards and tax credits. In such a situation, the Company may berequired to pay income taxes, even though significant operating loss carryforwards and tax credits exist.Uncertain Tax PositionsThe following is a rollforward of the Company’s unrecognized tax benefits: December 31, 2016 2015 (In thousands) Unrecognized tax benefits - as of beginning of year $3,480 $3,062 Gross increases - tax positions of prior periods — (43) Gross increases - current period tax positions 726 461 Unrecognized tax benefits - as of end of year $4,206 $3,480 None of the Company’s unrecognized tax benefits would result in income tax expense or impact the Company’s effective tax rate if recognized. The Company hadno accrued tax-related interest or penalties as of December 31, 2016 or 2015.The Company files income tax returns in the U.S. federal tax jurisdiction and Massachusetts, North Carolina and Colorado state tax jurisdictions. Since theCompany is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all taxyears in which a loss carryforward is available.7. Commitments and ContingenciesCommitmentsThe Company leases office and laboratory space at Technology Square in Cambridge, Massachusetts under an operating lease agreement with a term throughMay 31, 2018, with an option to extend the term of the lease for an additional five-year period at the then-current market rent, as defined in the lease. The leaseextension notice date is August 31, 2017. An extension fee of $0.2 million will be due and payable on November 30, 2017 if the Company has not (i) exercised itsfive-year option to renew the headquarter lease or (ii) signed a lease with its existing landlord for a new location with increased square footage.The Company has a $0.5 million letter of credit as a security deposit for this lease and has recorded cash held to secure this letter of credit as restricted cash inrestricted cash and other assets on the consolidated balance sheet. The Company recognizes rent expense, inclusive of escalation charges, on a straight-line basisover the initial term of the lease agreement. F-19Table of ContentsIn addition, the Company has a capital lease related to computer hardware equipment, an operating lease for storage space in Colorado and an operating lease foroffice space in North Carolina.Rent expense was $2.8 million, $2.7 million and $2.5 million for the years ended December 31, 2016, 2015, and 2014, respectively.The Company’s contractual commitments under these leases, excluding common area maintenance charges and real estate taxes, as of December 31, 2016 are asfollows: Total 2017 2018 2019 (In thousands) Operating leases $4,100 $2,898 $1,202 $— Capital lease, including amounts representing interest 776 665 111 — Total commitments $4,876 $3,563 $1,313 $— In addition to commitments under leasing arrangements, as of December 31, 2016 the Company has committed to $12.0 million of remaining development costspayable to Roche Molecular, expected to be paid through 2019 upon certain development and regulatory milestones, under an amended companion diagnosticagreement. In addition, the contractual commitments table above does not include potential future milestones or royalties that the Company may be required tomake under license and collaboration agreements, including potential future milestones or royalties payable to Eisai under the amended collaboration and licenseagreement, due to the uncertainty of the occurrence of the events requiring payment under these agreements. Refer to Note 9, Collaborations .Additionally, the Company enters into contracts in the normal course of business with clinical research organizations for clinical and preclinical research studies,external manufacturers for product for use in clinical trials, and other research supplies and other services as part of the Company’s operations. These contractsgenerally provide for termination on notice, and therefore are cancelable contracts and not included in the contractual commitments table above.ContingenciesIn October 2013, the Company entered into a license agreement with a third party to obtain a non-exclusive license to a patent related to an excipient in theformulation of pinometostat. During the term of this license agreement, the Company may be required to make a €0.3 million milestone payment upon the firstapproval of a new drug application for pinometostat and pay royalties in the low single digits on commercial net sales of pinometostat.8. Stockholders’ (Deficit) EquityEach share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled todividends when and if declared by the board of directors.In January 2016, the Company issued an additional 15,333,334 shares of common stock in connection with a public offering. The issuance of these sharescontributed to a significant increase in the Company’s shares outstanding as of December 31, 2016 and in the weighted average shares outstanding for the yearended December 31, 2016 when compared to the comparable prior year periods. During the year ended December 31, 2016, the Company also sold 23,581 sharesof Common Stock under an “at the market” program (“ATM Facility”) with Cowen and Company, LLC (“Cowen”) acting as sales agent during the year endedDecember 31, 2016. Cowen was compensated at a fixed commission rate of 3.0%. Transactions under the ATM Facility resulted in net proceeds of $0.3 million inthe year ended December 31, 2016. The Company also incurred other F-20Table of Contentsissuance related costs of $0.1 million associated with the ATM Facility in the fourth quarter of 2016, which have been accounted for as an offset to additional paidin capital. Through March 10, 2017, including sales in the year ended December 31, 2016, the Company sold 155,834 shares of Common Stock under the salesagreement with Cowen, resulting in net proceeds of $1.9 million related to the ATM Facility. The Company terminated the sales agreement with Cowen, effectiveMarch 10, 2017.As of December 31, 2016, a total of 6,952,359 shares of common stock were reserved for issuance upon (i) the exercise of outstanding stock options and vesting ofrestricted stock units and (ii) the issuance of stock awards under the Company’s 2013 Stock Incentive Plan and 2013 Employee Stock Purchase Plan.9. CollaborationsCelgeneIn April 2012, the Company entered into a collaboration and license agreement with Celgene. On July 8, 2015, the Company entered into an amendment andrestatement of the collaboration and license agreement with Celgene.Original Agreement StructureUnder the original agreement, the Company granted Celgene an exclusive license, for all countries other than the United States, to small molecule HMT inhibitorstargeting the DOT1L HMT, including pinometostat, and an option, on a target-by-target basis, to exclusively license, for all countries other than the United States,rights to small molecule HMT inhibitors targeting any HMT targets, other than the EZH2 HMT, including tazemetostat, and targets covered by the Company’scollaboration and license agreement dated January 8, 2011 with GlaxoSmithKline (“GSK”). Under the original agreement, Celgene’s option was exercisable duringan option period that would have expired on July 9, 2015.Under the original agreement, the Company received a $65.0 million upfront payment and $25.0 million from the sale of its series C redeemable convertiblepreferred stock to an affiliate of Celgene, of which $3.0 million was considered a premium and included as collaboration arrangement consideration for a totalupfront payment of $68.0 million. In addition, the Company has received a $25.0 million clinical development milestone payment and $7.0 million of globaldevelopment co-funding through December 31, 2016. The Company was also eligible to receive $35.0 million in an additional clinical development milestonepayment and up to $100.0 million in regulatory milestone payments related to DOT1L as well as up to $65.0 million in payments, including a combination ofclinical development milestone payments and an option exercise fee for each available target to which Celgene had the right to exercise its option during an initialoption period that would have ended in July 2015 (each a “selected target”), and up to $100.0 million in regulatory milestone payments for each selected target. Asto DOT1L and each selected target, the Company retained all product rights in the United States and was eligible to receive royalties for each target at definedpercentages ranging from the mid-single digits to the mid-teens on net product sales outside of the United States subject to reduction in specified circumstances.The Company was obligated to conduct and solely fund research and development costs of the Phase 1 clinical trials for pinometostat. For all remaining DOT1Lprogram development costs, Celgene and the Company were to equally co-fund global development and each party was to solely fund territory-specificdevelopment costs for its territory.Amended and Restated Agreement StructureUnder the amended and restated collaboration and license agreement: • Celgene retains its exclusive license to small molecule HMT inhibitors targeting DOT1L, including pinometostat, F-21Table of Contents • Celgene’s other option rights have been narrowed to small molecule HMT inhibitors targeting three predefined targets (the “Option Targets”), • The exclusive licenses to HMT inhibitors targeting two of the Option Targets that Celgene may acquire have been expanded to include the UnitedStates, with the exclusive license to HMT inhibitors targeting the third Option Target continuing to be for all countries other than the United States, • Celgene’s option period has been extended for each of the Option Targets and Celgene’s option is exercisable at the time of the Company’sinvestigational new drug application (“IND”) filing for an HMT inhibitor targeting the applicable Option Target, upon the payment by Celgene at suchtime of a pre-specified development milestone-based license payment, • Celgene’s license may be maintained beyond the end of Phase 1 clinical development for each of the Option Targets, upon payment by Celgene atsuch time of a pre-specified development milestone-based license payment, and • The Company’s research and development obligations with respect to each Option Target under the amended and restated agreement have beenextended for at least an additional three years, subject to Celgene exercising its option with respect to such Option Target at IND filing. Subject to theCompany’s opt-out rights, the Company’s research and development obligations have been expanded to include the completion of a Phase 1 clinicaltrial as to each Option Target following Celgene’s exercise of its option at IND filing.Under the amended and restated agreement, the Company received a $10.0 million upfront payment in exchange for the Company’s extension of Celgene’s optionrights to the Option Targets and the Company’s research and development obligations. In addition, the Company is eligible to earn an aggregate of up to $75.0million in development milestones and license payments, up to $365.0 million in regulatory milestone payments and up to $170.0 million in sales milestonepayments related to the three Option Targets. The Company is also eligible to receive royalties on each of the Option Targets as specified in the amended andrestated agreement. The Company is also eligible to earn $35.0 million in an additional clinical development milestone payment and up to $100.0 million inregulatory milestone payments related to DOT1L. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associatedwith drug development, the Company may not receive any additional milestone payments or royalty payments from Celgene. Due to the varying stages ofdevelopment of each target, the Company is not able to determine the next milestone that might be earned, if any.The amended and restated agreement eliminated the right of first negotiation that the Company had granted to Celgene under the original agreement with respect tobusiness combination transactions that the Company may desire to pursue with third parties.The Company is primarily responsible for the research strategy under the collaboration. During each applicable option period the Company is required to usecommercially reasonable efforts to carry out a mutually agreed-upon research plan for each Option Target. Subject to the Company’s opt-out right, for the DOT1Ltarget and each of the Option Targets, the Company is required to conduct and solely fund development costs of the Phase 1 clinical trials for HMT inhibitorsdirected to such targets, including for pinometostat. After the completion of Phase 1 development, as to DOT1L and the Option Target for which the Companyretains U.S. rights, Celgene and the Company will equally co-fund global development and each party will solely fund territory-specific development costs for itsrespective territory; and, as to the other two Option Targets, after the completion of Phase 1 development, Celgene will solely fund all development costs on aworldwide basis.Accounting Considerations of the Amended and Restated AgreementThe Company determined that the amended and restated agreement represented a modification of the original agreement. Accordingly, the Company determinedthat the remaining deferred revenue of $21.6 million attributable to the original agreement should be combined with the $10.0 million upfront payment receivedfrom F-22Table of ContentsCelgene upon execution of the amended and restated agreement. This combined amount, along with any development milestone-based license fees associated withthose Option Targets where Celgene’s option rights are determined to be non-substantive, will be recognized on a prospective basis after (i) identifying thedeliverables and units of accounting included in the amended and restated agreement, (ii) allocating the total arrangement fee among the units of accounting and(iii) determining the revenue recognition for each unit of accounting.The Company evaluated the deliverables in the amended and restated agreement and determined that the deliverables included its obligation to provide researchand development services for DOT1L and the three Option Targets. In addition, the Company concluded that Celgene’s option rights are not substantive and thelicenses to HMT inhibitors targeting each Option Target were therefore considered to be deliverables. As a result, the Company has determined the deliverables inthe amended and restated arrangement to be: • Research and development services for DOT1L and the three Option Targets • Licenses to HMT inhibitors targeting the Option TargetsThe Company evaluated the nature of the deliverables to determine the units of accounting. At a program level (that is, for DOT1L and each Option Target), theCompany believes there is standalone value. Therefore, the identified deliverables were evaluated on a program by program basis to determine the units ofaccounting.The Company determined the research services related to DOT1L have stand-alone value as the services are delivered and therefore represent a single unit ofaccounting. There are no other deliverables related to the DOT1L program. For two of the Option Targets, the Company concluded the licenses and related researchservices should be accounted for as a combined unit of accounting up until an IND filing. Prior to an IND filing, the delivered research services do not havestandalone value from the remaining undelivered elements because Celgene could not resell the research services and no other vendor has the specialized skills andknow-how related to HMT inhibitors necessary to provide the research services. After an IND filing, for these two Option Targets, the Company concluded thedelivered pre-IND research services and licenses, once delivered, would have standalone value from the remaining research services because Celgene, or othermarket participants, would have the ability to execute human clinical trials on the identified compound. After an IND filing, the remaining research servicesrepresent a separate unit of accounting which has standalone value upon delivery. With respect to the third Option Target where the Company retains U.S. rights,because the license terms restrict Celgene’s access to information through the completion of a Phase 1 trial that would otherwise be necessary for Celgene, or othermarket participants, to execute human clinical trials on the identified compound, the Company determined the licenses did not have standalone value apart from theresearch services Accordingly, for the third Option Target, the licenses and research services will be accounted for as a combined unit of accounting.Because Celgene’s option rights with respect to the Option Targets are not considered substantive, any development milestone-based license fees associated withthe Option Targets would be considered to be part of the total consideration for purposes of allocating the arrangement consideration. Accordingly, the Companyhas identified the total allocable arrangement consideration to be $106.6 million, as follows: (i) the remaining $21.6 million of deferred revenue under the originalagreement, (ii) the $10.0 million upfront payment made in connection with the amended and restated agreement, and (iii) the $75.0 million of aggregatedevelopment milestone-based license fees associated with the Option Targets.The allocable arrangement consideration has been allocated to the identified deliverables using the relative selling price method. The Company estimated theselling price of the license deliverable for each Option Target using management’s best estimate of selling price after considering potential future cash flows undereach license and industry benchmarks on the probability of achieving development milestones. The Company then discounted these probability-weighted cashflows to their present value. The Company estimated the selling price of the research services to be provided in connection with the DOT1L Phase 1 clinical trialand related to each Option Target using management’s best estimate of selling price based on the Company’s estimated cost of providing F-23Table of Contentsthe services plus an applicable profit margin of 10%, which is commensurate with observable market data for similar services.Due to the stage of development of each of the option programs and considering the expected timing of delivery for those deliverables associated with each OptionTarget, the Company does not expect to recognize revenue related to the Option Targets in 2017. The Company expects to recognize the allocated arrangementconsideration as follows, subject to the limitation described in ASC 605-25-30-5: • Research and development services for DOT1L: The arrangement consideration allocated to the DOT1L program will be recognized as the researchand development services are performed. The Company allocated $2.8 million to the remaining research services under the DOT1L program, and thisamount was recognized through December 31, 2016, the period over which the related research services were provided. • Two Option Targets: The arrangement consideration allocated to these Option Targets of $70.2 million in the aggregate will be deferred until an INDfiling. The Company does not expect to recognize any revenue related to the Option Targets during 2017. • Third Option Target: The licenses and the research services provided through completion of a Phase 1 trial represent a single combined unit ofaccounting. Therefore, because a license is the last delivered item in this unit of accounting, the Company will defer all consideration allocated to thisunit of accounting, $33.6 million, until the delivery of the license upon completion of a Phase 1 clinical trial. The Company does not expect torecognize any revenue related to the Option Target during 2017. • If any of the programs are terminated in accordance with the amended and restated agreement, any remaining deferred revenue will be reallocatedamong the undelivered items based upon their relative selling prices.Collaboration RevenueThrough December 31, 2016, in addition to amounts allocated to Celgene’s purchase of shares of the Company’s series C redeemable convertible preferred stock,the Company had recorded a total of $110.0 million in cash and accounts receivable under the Celgene agreement, as amended, including the $3.0 million impliedpremium on Celgene’s purchase of shares of the Company’s series C redeemable convertible preferred stock.Through December 31, 2016, the Company has recognized $74.3 million of total collaboration revenue since the inception of the collaboration, including $1.9million, $1.1 million and $9.6 million in the years ended December 31, 2016, 2015, and 2014, respectively. In addition, the Company has recognized $0.1 million,$1.1 million and $3.9 million of total global development co-funding as a reduction to research and development expense in the years ended December 31, 2016,2015, and 2014, respectively. As of December 31, 2016 and December 31, 2015, the Company had deferred revenue of $28.8 million and $30.7 million,respectively, related to this agreement.GSKIn January 2011, the Company entered into a collaboration and license agreement with GSK, to discover, develop and commercialize novel small molecule HMTinhibitors directed to available targets from the Company’s platform. Under the terms of the agreement, the Company granted GSK exclusive worldwide licenserights to HMT inhibitors directed to three targets. Additionally, as part of the research collaboration, the Company agreed to provide research and developmentservices related to the licensed targets pursuant to agreed upon research plans during a research term that ended January 8, 2015. In March 2014, the Company andGSK amended certain terms of this agreement for the third licensed target, revising the license terms with respect to candidate compounds and amending thecorresponding financial terms, including reallocating milestone payments and increasing royalty rates as to the third target. The Company substantially completedall research obligations F-24Table of Contentsunder this agreement by the end of the first quarter of 2015 and completed the transfer of the remaining data and materials for these programs to GSK in the secondquarter of 2015.Agreement StructureUnder the agreement, the Company has recorded a $20.0 million upfront payment, a $3.0 million payment upon the execution of the March 2014 agreementamendment, $6.0 million of fixed research funding, $15.0 million of preclinical research and development milestone payments and $9.0 million for research anddevelopment services. In addition, in the third quarter of 2016, the Company recognized a $6.0 million clinical milestone following GSK’s initiation of patientdosing in a Phase 1 clinical trial of a PRMT5 inhibitor that was discovered by the Company and licensed to GSK. The Company is eligible to receive up to $18.0million in additional preclinical research and development milestone payments, up to $103.0 million in clinical development milestone payments, up to $278.0million in regulatory milestone payments and up to $218.0 million in sales-based milestone payments. In addition, GSK is required to pay the Company royalties,at percentages from the mid-single digits to the low double-digits, on a licensed product-by-licensed product basis, on worldwide net product sales, subject toreduction in specified circumstances. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drugdevelopment, the Company may not receive any additional milestone payments or royalty payments from GSK. The next potential milestone that the Companymight receive under this agreement would be a $10.0 million payment for the commencement of a good laboratory practices, or GLP, toxicity study by GSK for thesecond licensed target under the agreement. GSK became solely responsible for development and commercialization for each licensed target in the collaborationwhen the research term ended on January 8, 2015.Accounting Analysis. For each selected target in the collaboration, the Company was primarily responsible for research until the earlier of the selection of adevelopment candidate for the target or January 8, 2015, and GSK is solely responsible for subsequent development and commercialization. GSK provided a fixedamount of research funding during the second and third years of the research term. GSK was obligated to provide research funding equal to 100.0% of research anddevelopment costs, subject to specified limitations, during the fourth year of the research term.The significant deliverables of this multiple-element revenue arrangement were determined to be exclusive licenses to three targets and corresponding researchservices for each target. At the inception of the arrangement, the Company concluded that the licenses could not be used for their intended purpose without thehighly specialized skills and know-how relating to HMT inhibitors that is only available from the Company. The Company therefore concluded that the targetlicenses lacked standalone value apart from the related research services due to the limited economic benefit that GSK would derive from the licenses if it did notobtain the Company’s research services and due to the lack of transferability of the exclusive licenses. The Company therefore accounted for these deliverables, ona license-by-license basis, as a combined unit of accounting. The Company concluded that the option to secure licenses for three targets was not substantive, as theCompany was not at risk with regard to GSK exercising its option due to the size of the upfront payment and the research funding commitment. Since the optionwas not considered substantive, the Company considered the licenses to be deliverables at the inception of the agreement. While the Company concluded that therewere three units of accounting, each consisting of a license to a target and the research and development services related to that target, because the targets were atsimilar stages of development at the inception of the agreement, had equal probabilities of success and the research services in each unit of accounting wereinitially expected to be performed concurrently on a ratable basis over the research term, the Company allocated the arrangement consideration equally across thethree targets. Accordingly, the $30.0 million of allocable arrangement consideration, consisting of the $20.0 million upfront payment, $4.0 million in milestonepayments achieved during the selection term and the $6.0 million fixed research funding, was recognized as collaboration revenue, on a target-by-target basis,ratably from the conclusion of the selection term, in July 2012, through the end of the research term, or earlier if a target reaches development candidate selection,at which point GSK is solely responsible for development and commercialization. In December 2013, the Company and GSK agreed to the F-25Table of Contentsselection of a development candidate for one of the three targets under the agreement, earning the Company a $4.0 million milestone payment and reducing theperiod over which the Company was recognizing revenue for this target by nine months. Accordingly, the Company recognized the remaining deferred revenuerelated to this target during the first quarter of 2014. As to this target, GSK is solely responsible for subsequent development and commercialization.The $3.0 million upfront payment received in connection with the March 2014 amendment was allocated equally to the remaining two targets for which theCompany was actively providing research and development services, as these remaining two targets were at similar stages of development, had equal probabilitiesof success and the remaining research services were expected to be performed concurrently on a ratable basis over the research term. The $3.0 million wasrecognized as collaboration revenue, on a target-by-target basis, ratably from the execution of the amendment, in March 2014, through the end of the research term.In the fourth quarter of 2014, the Company agreed to perform additional preclinical research and development studies related to the third target under theagreement, which extended the research term for this target through June 2015. Accordingly, the Company recognized the remaining deferred revenue related tothis deliverable, of approximately $1.2 million as of December 31, 2014, in 2015.During the selection term, the Company received $4.0 million upon the achievement of preclinical research and development milestones which required effort inthe form of research activities by the Company and was not certain to be achieved at the execution of the agreement. However, because GSK had the right to drop atarget and select a replacement target at any point during the selection term, the Company, in such a case, would have been obligated to perform the validationwork for a replacement target. Consequently, this $4.0 million in preclinical research and development milestones was combined with the upfront payment andfixed research funding and was recognized as collaboration revenue ratably over the research term. The Company has evaluated the remaining milestones underthis agreement and determined that the milestones through development candidate selection are substantive given the significant uncertainty as to the outcome ofthe substantial research efforts to be performed by the Company in order to achieve the milestones and will be recognized as revenue upon achievement, assumingall other revenue recognition criteria are met. The milestones after development candidate selection are not considered substantive because the Company does notcontribute effort to the achievement of such milestones, which would generally be achieved after the research term. In 2014, the Company achieved $3.0 million inpreclinical research and development milestones upon the selection of lead candidates for the second and third targets under the agreement. In the fourth quarter of2013, the Company achieved a $4.0 million preclinical research and development milestone upon the selection of a development candidate for one of the threetargets under the agreement. In the third quarter of 2012, the Company achieved two additional preclinical research and development milestones and receivedpayments totaling $4.0 million. The preclinical research and development milestones achieved in 2014, 2013 and 2012 required effort in the form of researchactivities by the Company and were not certain to be achieved at the execution of the agreement. Additionally, at the time of the achievement of these preclinicalresearch and development milestones, the selection term had expired and, as such, these milestones were determined to be substantive, and the milestones wererecognized as revenue upon achievement.Agreement Termination Rights. The agreement will expire on a product-by-product and country-by-country basis on the date of the expiration of the applicableroyalty term with respect to each licensed product in each country and in its entirety upon the expiration of all applicable royalty terms for all licensed products inall countries. The royalty term for each licensed product in each country is the period commencing with the first commercial sale of the applicable licensed productin the applicable country and ending on the later of expiration of specified patent coverage or a specified period of years.GSK has the right to terminate the agreement at any time with respect to one or more selected targets or in its entirety, upon 90 days’ prior written notice to theCompany. The agreement may also be terminated with respect to one or more selected targets or in its entirety by either GSK or the Company in the event of amaterial breach by the other party. The agreement may be terminated with respect to selected targets by the Company in the F-26Table of Contentsevent GSK, or an affiliate or sublicensee of GSK, participates or actively assists in a legal challenge to one of the patents exclusively licensed to GSK under theagreement with respect to the applicable target.Collaboration RevenueThrough December 31, 2016, the Company has earned a total of $59.0 million under the GSK agreement, which the Company recognized as collaboration revenuein the condensed consolidated statements of operations and comprehensive loss, including $6.0 million, $1.4 million and $25.5 million in the years endedDecember 31, 2016, 2015 and 2014, respectively. The Company did not have any deferred revenue related to this agreement as of December 31, 2016 or 2015 andany future revenues will relate to any milestone payments and royalties received under the agreement, if anyEisaiIn April 2011, the Company entered into a collaboration and license agreement with Eisai under which the Company granted Eisai an exclusive worldwide licenseto its small molecule HMT inhibitors directed to the EZH2 HMT, including the Company’s product candidate tazemetostat, while retaining an opt-in right to co-develop, co-commercialize and share profits with Eisai as to licensed products in the United States.As of December 31, 2014, the Company had completed its performance obligations under the original agreement.In March 2015, the Company entered into an amended and restated collaboration and license agreement with Eisai, under which the Company reacquiredworldwide rights, excluding Japan, to its EZH2 program, including tazemetostat. Under the amended and restated agreement, the Company is responsible for globaldevelopment, manufacturing and commercialization outside of Japan of tazemetostat and any other EZH2 product candidates, with Eisai retaining development andcommercialization rights in Japan, as well as a right to elect to manufacture tazemetostat and any other EZH2 product candidates in Japan.Under the original agreement, Eisai was solely responsible for funding all research, development and commercialization costs for EZH2 compounds. Under theamended and restated agreement, the Company is solely responsible for funding global development, manufacturing and commercialization costs for EZH2compounds outside of Japan, including the remaining development costs due under a Roche Molecular companion diagnostic agreement, and Eisai is solelyresponsible for funding Japan-specific development and commercialization costs for EZH2 compounds.The Company recorded the reacquisition of worldwide rights, excluding Japan, to the EZH2 program, including tazemetostat, under the amended and restatedagreement with Eisai as an acquisition of an in-process research and development asset. As this asset was acquired without corresponding processes or activitiesthat would constitute a business, had not achieved regulatory approval for marketing and, absent obtaining such approval, had no alternative future use, theCompany recorded the $40.0 million upfront payment made to Eisai in March 2015 as research and development expense in the consolidated statements ofoperations and comprehensive loss. The Company has also agreed to pay Eisai up to $20.0 million in clinical development milestone payments, up to $50.0 millionin regulatory milestone payments and royalties at a percentage in the mid-teens on worldwide net sales of any EZH2 product, excluding net sales in Japan. TheCompany is eligible to receive from Eisai royalties at a percentage in the mid-teens on net sales of any EZH2 product in Japan.LYSAIn May 2016, the Company entered into a collaboration agreement with the Lymphoma Academic Research Organisation (“LYSARC”), for the first plannedcombination trial of tazemetostat. LYSARC is the operational arm of the Lymphoma Study Association (“LYSA”), a premier cooperative group in Francededicated to clinical and translational research for lymphoma. This Phase 1b/2 study is evaluating tazemetostat in combination with F-27Table of ContentsR-CHOP, the standard of care front-line combination treatment for diffuse large B-cell lymphoma (DLBCL), as a front-line treatment in elderly, high-risk patientswith DLBCL and is being sponsored by LYSARC. LYSA is managing the study operations for the trial, and the Company is recognizing its share of the relatedexpenses as those costs are incurred over the duration of the trial.GenentechIn June 2016, the Company entered into a collaboration agreement with Genentech Inc. (“Genentech”), a member of the Roche Group, to conduct a Phase 1bclinical trial to investigate the anti-cancer effects of the Company’s EZH2 inhibitor, tazemetostat, and Genentech’s anti-PD-L1 cancer immunotherapy, Tecentriq(atezolizumab), when used in combination. The trial is evaluating this combination regimen for the treatment of patients with relapsed or refractory DLBCL. Underthe agreement, each company is supplying its respective anti-cancer agent to support the trial and sharing equally in the trial costs. Genentech is managing the studyoperations for the trial, and the Company is recognizing its share of the related expenses as those costs are incurred over the duration of the trial.Companion DiagnosticsRoche Molecular. In December 2012, Eisai and the Company entered into an agreement with Roche Molecular under which Eisai and the Company engagedRoche Molecular to develop a companion diagnostic to identify patients who possess certain activating mutations of EZH2. In October 2013, this agreement wasamended to include additional mutations in EZH2. The development costs due under the amended agreement with Roche Molecular were the responsibility of Eisaiuntil the execution of the amended and restated collaboration and license agreement with Eisai in March 2015, at which time the Company assumed responsibilityfor the remaining development costs due under the agreement. In December 2015, the Company entered into the second amendment to the companion diagnosticagreement with Roche Molecular. As of December 31, 2016, the Company is responsible for the remaining development costs of $12.0 million due under thesecond amendment. The Company expects the remaining development costs under the second amendment to be incurred and paid through 2019.Under the agreement with Roche Molecular, Roche Molecular is obligated to use commercially reasonable efforts to develop and to make commercially availablethe companion diagnostic. Roche Molecular has exclusive rights to commercialize the companion diagnostic.The agreement with Roche Molecular will expire when the Company is no longer developing or commercializing tazemetostat. The Company may terminate theagreement by giving Roche Molecular 90 days’ written notice if the Company discontinues development and commercialization of tazemetostat or determines, inconjunction with Roche Molecular, that the companion diagnostic is not needed for use with tazemetostat. Either the Company or Roche Molecular may alsoterminate the agreement in the event of a material breach by the other party, in the event of material changes in circumstances that are contrary to key assumptionsspecified in the agreement or in the event of specified bankruptcy or similar circumstances. Under specified termination circumstances, Roche Molecular maybecome entitled to specified termination fees.10. Employee Benefit PlansStock Incentive PlansIn 2008, the Company’s board of directors adopted and the Company’s stockholders approved the 2008 Stock Incentive Plan (the “2008 Plan”), which provided forthe granting of certain defined stock incentive awards to employees, members of the Company’s board of directors and non-employee consultants, advisors or otherservice providers. In April 2013, the Company’s board of directors adopted and the Company’s stockholders approved the 2013 Stock Incentive Plan (the “2013Plan”), which provides for the granting of certain defined F-28Table of Contentsstock incentive awards to employees, members of the Company’s board of directors and non-employee consultants, advisors or other service providers.Additionally, in May 2013, the Company’s board of directors adopted and the Company’s stockholders approved the 2013 Employee Stock Purchase Plan (the“2013 ESPP”), which provides participating employees the option to purchase shares of the Company’s common stock at defined purchase prices over six monthoffering periods.Stock incentive awards granted under the 2013 Plan may be incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units,stock appreciation rights and other stock-based awards under the applicable provisions of the Internal Revenue Code. Incentive stock options are granted only toemployees of the Company. Non-qualified stock options and restricted stock may be granted to officers, employees, consultants, advisors and other serviceproviders. Incentive and non-qualified stock options and restricted stock granted to employees generally vest over four years, with 25.0% vesting upon the one-yearanniversary of the grant and the remaining 75.0% vesting monthly over the following three years. Non-qualified stock options granted to consultants and other non-employees generally vest over the period of service to the Company. Incentive and non-qualified stock options expire ten years from the date of grant. Initial non-qualified stock options granted to members of the Company’s board of directors generally vest over the recipient’s term of Board service. Annual non-qualifiedstock options granted to members of the Company’s board of directors vest on the one-year anniversary of the grant.Stock-Based CompensationStock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss as follows: Year Ended December 31, 2016 2015 2014 (In thousands) Research and development $5,352 $5,155 $3,299 General and administrative 5,216 4,694 3,565 Total $10,568 $9,849 $6,864 Stock OptionsThe Company uses the Black-Scholes option-pricing model to measure the fair value of stock option awards. Key assumptions used in this pricing model on thedate of grant for options granted to employees are as follows: Year Ended December 31, 2016 2015 2014 Risk-free interest rate 1.2% 1.6% 1.6% Expected life of options 6.0 years 6.0 years 6.0 years Expected volatility of underlying stock 78.5% 83.6% 92.1% Expected dividend yield 0.0% 0.0% 0.0% There were no stock option awards granted to non-employees in 2016, 2015 or 2014.The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant, with a term that approximates the expected life of the option.The Company calculates the expected life of options granted to employees using the simplified method as the Company has insufficient historical information toprovide a basis for estimate. The Company determines the expected volatility using a blended approach encompassing its historical experience and the historicalvolatility of a peer group of comparable publicly traded companies with product candidates in similar stages of development to the Company’s product candidates.The Company has F-29Table of Contentsapplied an expected dividend yield of 0.0% as the Company has not historically declared a dividend and does not anticipate declaring a dividend during theexpected life of the options.The following is a summary of stock option activity for the year ended December 31, 2016: Number of Options WeightedAverage Exercise Price per Share Weighted Average Remaining ContractualTerm Aggregate Intrinsic Value (In thousands) (In years) (In thousands) Outstanding at December 31, 2015 3,100 $15.20 Granted 2,213 9.50 Exercised (788) 2.02 Forfeited or expired (466) 18.08 Outstanding at December 31, 2016 4,059 $14.32 8.4 $8,724 Exercisable at December 31, 2016 1,162 $18.39 6.9 $3,106 Vested and expected to vest 3,695 $14.53 8.3 $8,001 During the years ended December 31, 2016, 2015 and 2014, the Company granted stock options to purchase an aggregate of 2,212,668 shares, 1,289,755 shares and876,385 shares, respectively, at weighted average grant date fair values per option share of $6.42, $14.57 and $21.73, respectively. The total grant date fair value ofoptions that vested during the years ended December 31, 2016, 2015 and 2014 was $12.0 million, $9.3 million and $4.9 million, respectively. The aggregateintrinsic value of stock options exercised was $7.1 million in 2016, $11.9 million in 2015 and $59.4 million in 2014.As of December 31, 2016, there was $19.2 million of unrecognized stock-based compensation related to stock options that are expected to vest. These costs areexpected to be recognized over a weighted average remaining vesting period of 2.8 years.Restricted StockThe following is a summary of restricted stock unit activity for the year ended December 31, 2016: Number ofUnits Weighted Average Grant Date Fair Valueper Unit (In thousands) Outstanding at December 31, 2015 37 $18.49 Granted 81 9.29 Vested (54) 12.20 Outstanding at December 31, 2016 64 $12.20 In February 2016, the Company granted 80,732 restricted stock units with a grant date fair value of $9.29 per unit, in accordance with the Company’s chieffinancial officer’s employment agreement. One quarter of these restricted stock units vested on February 9, 2016 and the remaining three quarters are vesting on astraight line basis over 36 months. As of December 31, 2016 there was $0.8 million of unrecognized compensation cost related to restricted stock units that areexpected to vest. These costs are expected to be recognized over a weighted average remaining vesting period of 2.1 years. The intrinsic value of restricted stockthat vested during the years ended December 31, 2016, 2015 and 2014 was $0.5 million, $0.0 million and $0.1 million, respectively. F-30Table of Contents401(k) Savings PlanThe Company has a defined contribution 401(k) savings plan (the “401(k) Plan”). The 401(k) Plan covers substantially all employees, and allows participants todefer a portion of their annual compensation on a pretax basis. Company contributions to the 401(k) Plan may be made at the discretion of the board of directors.During the year ended December 31, 2014, the Company implemented a matching contribution to the 401(k) Plan, matching 50% of an employee’s contribution upto a maximum of 3% of the participant’s compensation. Company contributions to the 401(k) plan totaled $0.4 million, $0.4 million and $0.2 million in the yearsended December 31, 2016, 2015 and 2014, respectively.11. Loss per ShareAs described in Note 2, Summary of Significant Accounting Policies , the Company computes basic and diluted earnings (loss) per share using a methodology thatgives effect to the impact of outstanding participating securities (the “two-class method”). The two-class method was not applied for the years ended December 31,2016, 2015 and 2014 due to the net loss recognized in each of those periods.Basic and diluted loss per share allocable to common stockholders are computed as follows: Year Ended December 31, 2016 2015 2014 (In thousands except per share data) Net loss $(110,212) $(132,376) $(55,005) Weighted average shares outstanding 57,126 39,839 33,027 Basic and diluted loss per share allocable to common stockholders $(1.93) $(3.32) $(1.67) The following common stock equivalents were excluded from the calculation of diluted loss per share allocable to common stockholders because their inclusionwould have been antidilutive: Year Ended December 31, 2016 2015 2014 (In thousands) Stock options 4,059 3,100 2,960 Unvested restricted stock 64 37 — Shares issuable under employee stock purchase plan 46 8 6 4,169 3,145 2,966 12. Related Party TransactionsIn connection with its entry into the collaboration agreement with Celgene, on April 2, 2012, the Company sold Celgene 9,803,922 shares of its Series C PreferredStock. Refer to Note 9, Collaborations , for additional information regarding this collaboration agreement. In the second quarter of 2013, in connection with theCompany’s IPO, Celgene made an additional investment in the Company, acquiring an additional 66,666 shares of the Company’s common stock. Additionally, asa result of the IPO, Celgene’s shares of Series C Preferred Stock automatically converted to common stock of the Company at a one-for-three ratio, collectivelyresulting in Celgene owning 3,334,640 shares of the Company’s common stock as of December 31, 2013. In the first quarter of 2014, in connection with theCompany’s public offering of common stock, Celgene made an additional investment in the Company, acquiring an additional 340,000 shares of the Company’scommon stock. As of December 31, 2016, Celgene’s ownership percentage represented 6.3% of the Company’s outstanding common stock.Under the Celgene collaboration agreement, the Company recognized $1.9 million, $1.1 million and $9.6 million of collaboration revenue in the years endedDecember 31, 2016, 2015 and 2014, respectively, and as of F-31Table of ContentsDecember 31, 2016 and 2015, had recorded $28.8 million and $30.7 million of deferred revenue related to the Celgene collaboration arrangement, respectively.Additionally, in the years ended December 31, 2016, 2015 and 2014, the Company recorded $0.1 million, $1.1 million and $3.9 million, respectively, in globaldevelopment co-funding from Celgene. As of December 31, 2016 and 2015, the Company had accounts receivable of less than $0.1 million and $0.1 million,respectively, related to this collaboration arrangement.13. Unaudited Quarterly ResultsThe results of operations on a quarterly basis for the years ended December 31, 2016 and 2015 are set forth below: Quarter Ended March 31,2016 June 30, 2016 September 30,2016 December 31,2016 (In thousands, except per share data) Collaboration revenue $472 $473 $6,584 $478 Operating expenses: Research and development 17,740 21,450 23,888 28,383 General and administrative 5,846 7,424 7,522 7,580 Total operating expenses 23,586 28,874 31,410 35,963 Operating loss (23,114) (28,401) (24,826) (35,485) Other income, net 235 420 490 469 Net loss $(22,879) $(27,981) $(24,336) $(35,016) Loss per share allocable to common stockholders: Basic $(0.41) $(0.49) $(0.42) $(0.60) Diluted $(0.41) $(0.49) $(0.42) $(0.60) Weighted average shares outstanding: Basic 55,149 57,352 57,970 58,016 Diluted 55,149 57,352 57,970 58,016 Quarter Ended March 31,2015 June 30, 2015 September 30,2015 December 31,2015 (In thousands, except per share data) Collaboration revenue $911 $736 $358 $555 Operating expenses: Research and development 57,051 20,551 16,788 16,819 General and administrative 5,237 5,970 6,676 6,017 Total operating expenses 62,288 26,521 23,464 22,836 Operating loss (61,377) (25,785) (23,106) (22,281) Other income, net 51 26 41 55 Net loss $(61,326) $(25,759) $(23,065) $(22,226) Loss per share allocable to common stockholders: Basic $(1.75) $(0.63) $(0.56) $(0.53) Diluted $(1.75) $(0.63) $(0.56) $(0.53) Weighted average shares outstanding: Basic 34,992 41,087 41,461 41,725 Diluted 34,992 41,087 41,461 41,725 F-32Exhibit 10.18April 13, 2016Susan E. Graf17 Dege Farm RoadCalifon, NJ 07830Dear Susan:It is my pleasure to extend to you this offer of employment with Epizyme, Inc. (the “Company”). On behalf of the Company, I am pleased to set forth below theterms of your employment with the Company: 1.Employment. You will be employed to serve on a full-time basis as the Company’s Chief Business Officer, commencing on a date on or prior toApril 25, 2016 as may be mutually agreed by you and the Company (such date being the “Start Date”). As Chief Business Officer, you will beresponsible for such duties as are consistent with such position, plus such other duties as may from time to time be assigned to you by the Company.You shall report to the President and Chief Executive Officer, and you agree to devote your full business time, best efforts, skill, knowledge, attentionand energies to the advancement of the Company’s business and interests and to the performance of your duties and responsibilities as an employee ofthe Company. You agree to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein thatmay be adopted from time to time by the Company. 2.Base Salary. Your base salary will be at the rate of $15,208.33 per semi-monthly pay period (which if annualized equals $365,000), less all applicabletaxes and withholdings, to be paid in installments in accordance with the Company’s regular payroll practices. Such base salary may be adjusted fromtime to time in accordance with normal business practices and in the sole discretion of the Company. 3.Discretionary Bonus. Following the end of each fiscal year and subject to the approval of the Company’s Board of Directors or a committee of theBoard of Directors (the “Board”), you may be eligible for a retention and performance bonus, based on your performance and the Company’sperformance during the applicable fiscal year, as determined by the Company in its sole discretion. The bonus payable to you for 2016, if any, will beprorated to reflect the portion of 2016 for which you served as Chief Business Officer of the Company. Your target bonus is 40% of your annualizedbase salary. Such target bonus may be adjusted from time to time in accordance with normal business practices and in the sole discretion of theCompany. You must be an active employee of the Company on the date any bonus is distributed in order to be eligible for and to earn a bonus award,as it also serves as an incentive to remain employed by the Company. 4.Equity. On your Start Date, you will receive a stock option grant under the Company’s 2013 Stock Incentive Plan (the “Plan”) for the purchase of178,642 shares of common stock of the Company at an exercise price per share equal to the fair market value of one share of Common Stock on thedate of the grant as determined by the Company in its sole discretion. The stock option grant shall be subject to all terms and other provisions set forthin the Plan and in a separate stock option agreement, including the vesting schedule. The stock option agreement will provide that the option will vestover a four-year period with the first quarter of the underlying shares vesting on the first anniversary of the Start Date and the remaining three-fourthsof the underlying shares vesting monthly in 36 equal monthly installments following the first anniversary of the Start Date until fully vested on thefourth anniversary of the Start Date.You may also be eligible for other grants of stock or stock options as determined by and in the sole discretion of the Board. Nothing in this sectionshall affect your status as an employee at will, as set for below. 5.Relocation. You will also receive an additional one-time payment of $200,000 for relocation expenses on the first payroll after the Start Date, less allapplicable taxes and withholdings. If you resign from the Company voluntarily for any reason or are terminated by the Company for Cause (as definedunder the Company’s Executive Severance and Change in Control Plan) on or prior to the first anniversary of the Start Date, you will be responsible torepay to the Company100% of the relocation one-time payment ($200,000) less applicable taxes. If you resign from the Company voluntarily for anyreason or are terminated by the Company for Cause after the first anniversary of the Start Date, but on or prior to the second anniversary of the StartDate (months 13-24), you will be responsible to repay a pro-rata monthly portion, of $100,000 less applicable taxes. We will provide temporaryhousing, airfare, or hotel for you for your travel to and from the office between the Start Date and your actual move to the greater Boston area in orderto facilitate your relocation to the greater Boston area until August 31, 2016. Taxes associated with travel, hotel, and temporary housing benefit will bepaid on your behalf by the Company. Any amounts owed by you to the Company under this Section 5 as a result of you ceasing to be an employee ofthe Company shall be repaid within 60 days of the date you cease to be an employee of the Company, and the Company shall have the right to offsetsuch amounts against any amounts it owes you under this letter, the Company’s Executive Severance and Change in Control Plan or otherwise. 6.Benefits. You may participate in any and all benefit programs that the Company establishes and makes available to its employees from time to time,provided that you are eligible under (and subject to all provisions of) the plan documents that govern those programs. Benefits are subject to change atany time in the Company’s sole discretion. 7.Vacation. You will be eligible for a maximum of three (3) weeks of paid vacation per calendar year to be taken at such times as may be approved inadvance by the Company. The number of vacation days for which you are eligible shall accrue at the rate of 1.25 days per month that you areemployed during such calendar year. Your accrual and use of vacation time will be pursuant to Company policy, as established and as may bemodified in the sole discretion of the Company from time to time. 8.Invention, Non-Disclosure, Non-Competition and Non-Solicitation Obligations. In exchange for your employment with the Company pursuant tothe terms and conditions herein, you hereby acknowledge and affirm your obligations set forth in the enclosed Invention and Non-DisclosureAgreement to be executed for the benefit of the Company, which obligations remain in full force and effect and is a condition to your employmentwith the Company. 9.At-Will Employment. This letter shall not be construed as an agreement, either express or implied, to employ you for any stated term, and shall in noway alter the Company’s policy of employment at-will, under which both the Company and you remain free to end the employment relationship forany reason, at any time, with or without cause or notice. Similarly, nothing in this letter shall be construed as an agreement, either express or implied,to pay you any compensation or grant you any benefit beyond the end of your employment with the Company, except as otherwise explicitly set forthherein. This letter supersedes all prior understandings, whether written or oral, relating to the terms of your employment. 10.Severance Benefits. In recognition of your position with and value to the Company, and to provide you with assurance in the event of certainemployment terminations, you have been selected to participate in the Company’s Executive Severance and Change in Control Plan, as amended fromtime to time, a copy of which is enclosed with this letter.If this letter correctly sets forth the terms under which you will be employed by the Company, please sign and return to me, no later than April 15, 2016, theenclosed duplicate of this letter and the Invention and Non-Disclosure Agreement. Sincerely,By: /s/ Robert Basemore Robert Bazemore President and Chief Executive OfficerThe foregoing correctly sets forth the terms of my at-will employment with Epizyme, Inc. I am not relying on any representations other than those set forth above. /s/ Susan E. Graf Susan E. Graf DateExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements: 1.Registration Statement (Form S-8 No. 333-189629) pertaining to the 2008 Stock Incentive Plan, 2013 Stock Incentive Plan, and 2013 Employee StockPurchase Plan of Epizyme, Inc., 2.Registration Statement (Form S-8 No. 333-194205) pertaining to the 2013 Stock Incentive Plan and 2013 Employee Stock Purchase Plan of Epizyme,Inc., 3.Registration Statement (Form S-8 No. 333-202681) pertaining to the 2013 Stock Incentive Plan of Epizyme, Inc., 4.Registration Statement (Form S-8 No. 333-210028) pertaining to the 2013 Stock Incentive Plan of Epizyme, Inc., and 5.Registration Statement (Form S-3 No. 333-210774) and related Prospectus of Epizyme, Inc.;of our report dated March 13, 2017, with respect to the consolidated financial statements of Epizyme, Inc. included in this Annual Report (Form 10-K) of Epizyme,Inc. for the year ended December 31, 2016./s/ Ernst & Young LLPBoston, MassachusettsMarch 13, 2017Exhibit 31.1I, Robert B. Bazemore, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of Epizyme, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 13, 2017 /s/ Robert B. BazemoreRobert B. BazemorePresident and Chief Executive OfficerExhibit 31.2I, Andrew E. Singer, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of Epizyme, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 13, 2017 /s/ Andrew E. SingerAndrew E. SingerExecutive Vice President of Finance and Administration,Chief Financial Officer and TreasurerExhibit 32.1CERTIFICATIONS OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with this Annual Report on Form 10-K of Epizyme, Inc. (the “Company”) for the year ended December 31, 2016, as filed with the Securities andExchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to 18 U.S.C. (section) 1350, asadopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: March 13, 2017 /s/ Robert B. BazemoreRobert B. BazemorePresident and Chief Executive Officer /s/ Andrew E. SingerAndrew E. SingerExecutive Vice President of Finance andAdministration, Chief Financial Officer andTreasurer

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