The biotech sector is known for its volatility, particularly across its clinical stage constituents. Trial data dictates market sentiment, which in turn drives market cap. As we know, sentiment can shift quickly. Here are some of the week’s biggest movers so far, alongside an analysis of what initiated the response.
Biotech 1: Zafgen, Inc. (NASDAQ:ZFGN) – DOWN
At the end of last week, Zafgen would have fit comfortably into Market Exclusive’s box of small cap stocks, which we generally define as having a market capitalization of between $250 million and $1 billion. At time of writing, however, the company has fallen out of this bracket, with a current market capitalization of $181 million – a 60% decline on Tuesday’s close price.
Why the decline? Well, the company is trialing its lead pipeline candidate, beloranib, as potential treatment for Prader-Willi syndrome. Prader-Willi is a rare genetic disorder that causes obsessive eating and abnormal, but recognizable, facial features and other growths. The condition also has a learning disability association, with the majority of sufferers having an IQ between 35 and 70 – levels that indicate moderate to mild intellectual disability. There are more than 400,000 PW sufferers globally, and about 1 in 25,000 new borns have the disease in the US, meaning the company that gets an approved cure (there is no cure currently, only symptom therapy) has a real blockbuster on its hands. Unfortunately for Zafgen and its shareholders, beloranib (at least in Zafgen’s formulation) is not that cure.
The FDA put a “temporary” hold on the company’s phase III for PW in October, on the back of an announcement suggesting a patient in the trial had died of unknown causes. Despite the hold, the company continued treating patients in an extension trial, which the FDA did not halt. Zafgen announced this morning that it had learnt yesterday that a patient on this extension trial had died, with COD reported as blood clots in the lungs. Obviously, a death in trial can have serious implications for the fate of the drug in question. A second death pretty much guarantees the trial will be discontinued.
Biotech markets are well aware of this latter fact, and since beloranib forms the basis of the company’s two lead trials (the other is a phase IIb with an obesity indication), chances are Zafgen will not be seeing approval for any of its therapies any time soon. The FDA has not released a statement on the issue as yet, but when the agency reports its opinion, expect further downside.
Biotech 2: OncoGenex Pharmaceuticals, Inc. (NASDAQ:OGXI) – DOWN
This clinical stage biotech is down more than 32% on its Wednesday open. The company is trialing its lead pipeline candidate, custirsen, in a phase III with a metastatic castrate-resistant prostate cancer (CRPC) indication. Late on Tuesday, OncoGenex reported an interim analysis of the trial, which showed that there was no discernible benefit from OS perspective in patients taking custirsenin combination with docetaxel (current SOC), versus patients taking docetaxel on its own. Unlike Zafgen, however, this may be an opportunity to get into OncoGenex at a discount. The results are representative of a small subpopulation of the overall trial, and the company CEO, Scott Cormack, said in a statement that the overall trial remains on track to show statistical significance. Obviously, it is very much in a CEOs interests to suggest efficacy, but if he is right, the interim analysis will be moot. The drug has already proven safe in a final safety analysis, and could be a hit for OncoGenex if approved.
From a timeframe perspective, complete results are on track for release during the second half of next year. The endpoint is as aforementioned, more specifically an 85% power survival benefit, so keep an eye an eye out for the release as a potential upside catalyst. Elsewhere, OncoGenex is trialing the same treatment in NSCLC, and its secondary candidate, apatorsen, in three indications – NSCLC, bladder cancer and prostate cancer.
Having said this, don’t jump in just yet, even if you are looking to pick up the discount. Biotech markets are in selling mode, and there could be a long way to go for OncoGenex before (and if) it recovers.
