Drug Development

UPDATED: Beleaguered Zafgen crushed after FDA demands force it to dump lead drug

Stymied at the FDA with a lingering clinical hold on its lead obesity drug, Zafgen is dumping the therapy and retreating to a preclinical program in the pipeline.

The biotech announced after the market closed on Tuesday that it will now circle the wagons around ZGN-1061 after beloranib was linked with the death of two patients in a pivotal study. Zafgen also says it will once again reduce its ranks, chopping 34% of the survivors and cutting the payroll to 31. The reorganization is claiming the jobs of Patrick Loustau, president, and Alicia Secor, chief commercial officer.

Zafgen’s already battered shares plunged 50% by mid-morning Wednesday. Its shares have shed close to 90% of their 52-week high price, leaving the market cap at $93 million; less than the cash it has on hand.

Zafgen struggled mightily for months to overcome its problems, but ultimately the biotech was overwhelmed after a patient died in their Phase III study for Prader-Willi syndrome, which they determined was caused by a pulmonary embolism. Subsequently another patient taking the drug died, also from a pulmonary embolism, forcing the FDA to order a complete stop to any further dosing.

Zafgen cut its near-complete studies short, rolling out positive data on weight loss and refocusing on rare diseases, but it was all for naught. Regulators weren’t in a forgiving mood, or ready to let the development program continue the way the biotech had proposed. The FDA didn’t fallen in line with Zafgen’s plan to blaze a path forward with a new Phase III study tied to a risk mitigation strategy. In a call with analysts on Tuesday evening, CEO Tom Hughes said that while the agency appeared receptive to its risk mitigation strategy, regulators demanded more time for discussion and looked for a longer Phase III that would “greatly extend” the timeline and cost needed to begin commercialization work.

As is often the case with Zafgen, execs spun the news hard, with Hughes doggedly insisting on the positive aspects of starting with a clean slate and a new drug. But Zafgen is moving from a pivotal stage back to a preclinical drug that has yet to be tested in humans. Hughes insisted that 1061, which has only been tested in animals, is significantly de-risked, a position few experienced drug developers would consider plausible, given the extraordinarily high rate of failure for all preclinical programs, let alone the special demands placed on any obesity drug.

Zafgen will still have to contend with angry investors who watched the share price for the biotech plunge last year as company executives refused for several days to say just why they had cancelled a planned road show. Only after a prolonged pause did the company reveal that first death, still trying to determine whether he was in the drug arm or the placebo group. Sahm Adrangi’s Kerrisdale Capital later mounted a short attack on the wounded company, saying that beloranib had zero chance of ever getting an approval and was worth nothing more than what the company had in the bank, which they would probably squander anyway.

Analysts were left to sort through the wreckage Wednesday morning. RBC’s Simos Simeonidis decided to discontinue coverage of Zafgen and other obesity-related biotechs — which have seen little that could be considered positive news in some time — and some other skeptics adjusted their forecasts for Zafgen’s shares to match the amount of cash the company still has in hand.

CEO Tom Hughes’ statement:

“Given the heightened complexity and future cost of beloranib development, balanced against the emerging product profile of ZGN-1061, we believe that the long-term opportunity for ZGN-1061 is more robust than for beloranib. Given our deep knowledge of this new and exciting drug class, and our strong cash position, we believe we are well-positioned to advance ZGN-1061 as a potential new treatment for prevalent obesity-related indications.”

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