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.”

Microcap biotech Seelos Therapeutics is halting enrollment of its study in spinocerebellar ataxia type 3 (also known as Machado-Joseph disease) because of “financial considerations,” and in order to focus on other studies, the company said today, adding that the pause would be temporary.

The study will continue with the patients who have already enrolled, and the data from them will be used to decide whether to continue enrolling others in the future.