In March, 2015, development stage biotech Zafgen, Inc. (NASDAQ:ZFGN) traded for more than $50 a share. The company opened 2016 at just shy of $7 – an 86% decline across the period. The drop came as the result of two patient deaths in a phase III for its lead candidate beloranib, a weight loss treatment with a target indication of obesity in patients suffering from Prader-Willi syndrome (PWS).
At the end of last week, however, Zafgen gained 77% to top out at $10, and now trades at a 57% premium to 2016 lows. The gains come off the back of a positive topline readout for the seemingly doomed trial – topline that suggests there may still be hope for an FDA nod in the PWS indication after all. Ahead of a potential NDA submission, then, let’s take a deeper look at the drug in question in an attempt to weigh up the risk/benefit associated with administration and, in turn, figure out whether Zafgen is an opportunity for a discount allocation.
Beloranib is what’s called a METAP2 inhibitor. METAP2 is an enzyme that plays a role in a host of different processes in our bodies, and is primarily known in the biotech space as the enzyme responsible for tissue repair and for breaking down proteins. Aside from these primary functions, however, it also plays a part in lipid processing. High METAP2 activity is associated with low fat metabolism. By inhibiting the enzyme, beloranib increases lipid metabolism, converting fat to energy. In doing so, it effectively targets the obesity associated with genetic PWS.
What did the latest trial data show? The phase III had two concurrent endpoints – a statistically significant weight reduction and the improving of hyperphagia (excessive desire for food) related behavior. Two patient arms received 2.4 mg and 1.8 mg doses of beloranib, while a third arm received placebo. The dosed arms recorded average weight loss of 9.45% and 8.20% and reductions of hyperphagia-related behaviors of 7.0 units and 6.3 units respectively. Both endpoints hit in what is, essentially, a great result.
So why is this important now? Well, in December, and in the wake of the second patient death, the FDA placed an indefinite halt on the development of beloranib. At the time, all we knew was that beloranib was a high risk treatment (or so the deaths would suggest) and Zafgen didn’t have any large scale, public data to form a defense as to the benefit side of te drug. With this latest topline, Zafgen is able to mount a case for the continued development of beloranib – a case which it intends to put forward to the FDA this quarter. Whether the case will be sufficient to sway the agency’s opinion remains to be seen, but it is, at least, a shot.
We will get a little more insight before the end of the month, as the company plans to report a more detailed analysis of the trial some time in the next couple of weeks. We know the detailed analysis will include information of the drug’s impact on body composition, cardiovascular disease risk markers, metabolic endpoints, and quality of life measures. We don’t know whether any of this information will relate directly to the deaths, though we can assume that it will.
What are we looking for going forward? First, we’ll take a look at the detailed data to try and ascertain why the patients died. If the deaths came about as a direct result of treatment and there are no other mitigating circumstances, things don’t look good for beloranib. If, however, the patients in question suffered from another condition concurrently, or suffered from a particularly severe form of PWS, Zafgen may be able to persuade the FDA that a box warning, or a tightened patient population (i.e. one targeting the portion of PWS sufferers not at risk of severe AEs post-administration) justifies further development.
One thing is certain – we’re not going to get a quick turnaround. The FDA will likely want more data, which will mean more trials, cost and time. For an investor with a willingness to held on to an exposure for a few years, however, Zafgen could be a nice speculative position at its current price. Look out for the upcoming insight to shore up any bias.
