October 14, 2015 (Last Updated 10:15AM PT)
By Mark Terry, BioSpace.com Breaking News Staff
Boston-based Zafgen has stayed mum — until just recently — after canceling two investor meetings, which caused a major plunge in stock price and company value. With no word from the company to calm investors’ fears, analysts are speculating on what’s really going on.
Zafgen is focused on developing a drug to treat obesity. Its experimental drug, beloranib, is a methionine aminopeptidase 2 (MetAP2) inhibitor, which re-established the body’s ability to metabolize fat. It is currently undergoing a Phase III clinical trial in patients with the rare genetic disorder Prader-Willi Syndrome (PWS), which, among other things, causes uncontrolled eating. It is also undergoing two Phase II trials in patients with hypothalamic injury-associated obesity, and severe and complicated obesity.
The company canceled an investor meeting scheduled for Tuesday, Oct. 13 that was organized by RBC Capital. It then cancelled an investor dinner scheduled for today hosted by the Maxim Group.
Cancellations can be made for a variety of reasons, including executives being sick. Adam Feuerstein, writing for TheStreet, points out that it was only a few months ago that a sudden cancellation like these would be interpreted optimistically, and stocks would spike, suggesting either positive news was coming regarding clinical trials or a possible merger or acquisition. “That investors are now assuming the worst about Zafgen,” he wrote yesterday, “exemplifies the market’s psychological downshift as biotech and drug stocks sink.”
“We have received a number of inquiries from the investment community,” Patty Allen, Zafgen’s chief financial officer emailed investors and reporters Tuesday night. “As you are aware, we do not comment on share price movement or market speculation. We appreciate the concerns of our stakeholders. Zafgen remains committed to developing novel therapies to improve the health and well-being of patients affected by obesity and complex metabolic disorders.”
Which, as Feuerstein points out in an article today, is “Not helpful at all.”
Certainly not for shareholders, who have watched their investment plunge this week. Zafgen at $46.23 on Sept. 18, 2015, slowed to $43.78 on Sept. 23, and dropped to $31.26 on Sept. 29. Trading at $34.40 on Friday, Oct. 9, it took a dive after the cancellation, hitting $22.15 on Monday Oct. 12, and is currently trading for $16.13.
Feuerstein today said, “No rational company allows its shareholders to suffer extreme losses because of a ‘no comment’ policy on market speculation. If the reasons for Zafgen cancelling two investor meetings this week were benign, the company would have said so quickly and this trainwreck would have been avoided.”
At least one other analyst appears willing to stay open-minded. “We believe the reason that management hasn’t been able to communicate with investors is that they’re in possession of material information,” said RBC analyst Simos Simeonidis in a Tuesday research note, and they’re in the process of getting ready to inform investors.”
Spreading his bets, Simeonidis gave a 35 percent chance the company found a safety issue with beloranib, a 35 percent chance of data from one of its two clinical trials, or the possibility that there was a merger or acquisition deal pending, a partnership outside the U.S., or that the company’s chief executive, Thomas Hughes, was leaving. In other words, Simeonidis estimates there’s an equal chance of almost anything happening.
The Motley Fool, however, suggests that before panicking — which the market suggests has already happened — that positive efficacy data takes more time to evaluate than negative safety data, and that the longer the silence goes on the less likely a merger or acquisition is happening. Brian Orelli, writing for The Motley Fool, also points out that, “Buying Zafgen at this point will result in a substantial gain if the news turns out to be positive, but without any inside knowledge of the news, it would be more of a wager than an actual investment.”
Breaking News
Several hours after this original story, Zafgen released a statement, indicating that a patient had died during the course of its Phase III study of beloranib in Prader-Willi Syndrome. At this time, the course of death has not been determined and Zafgen has not indicated if there is a connection between the drug and the death.
“According to normal practice,” the company stated, “the event was reported to the U.S. Food and Drug Administration, at which point the Agency initiated a discussion with the Company. The Company is working with the Agency to expedite a review and understanding of this event, and to determine implications of the event on the conduct of the trial, and anticipates providing an update as its discussions with the Agency progress. The thoughts of the Company are with the family of the patient at this time. Zafgen remains committed to ensuring the safety of all patients enrolled in its studies.”
It should be noted that patients with Prader-Willi Syndrome, which is the result of a chromosomal deletion on chromosome 15, have a high mortality rate. A study published in 2006, stated, “Evidence suggests that Prader-Willi syndrome carries a risk of significant morbidity and mortality. Whittington and colleagues (2001) calculated an approximate death rate of 3 percent per year for those with Prader-Willi syndrome compared to that of 1 percent per year for the general population.” The article also notes that mortality in children with PWS was “usually sudden and associated with respiratory infection and high temperature, whereas the cause of death in adults is circulatory or respiratory.”
In response to the new information, Simeonidis with RBC sent out a note to investors discussing the company. “Taking into account his new information, which of course, introduces additional potential risk, and 1) the drug’s efficacy and safety so far, 2) the fact that it’s been through multiple DSMBs without being stopped for safety, 3) the fact that the 3 percent annual death rate appears in line with the death that has just occurred, and 4) the current risk/reward in the stock (the company has ~$8/share in cash), we reiterate our Outperform, Speculative risk, rating on .”
