Zafgen Lines Up $86M IPO to Bankroll Obesity Drug Push

4/20/14Follow @benthefidler

Zafgen signaled an IPO was likely on the way last year when it added firms like RA Capital, which typically back public companies, to its pool of investors. So perhaps it’s no surprise that the Cambridge, MA-based company has become the latest biotech to join the crowded IPO queue.

Zafgen is planning to raise up to $86.25 million by taking itself public, according to a prospectus the company filed with the Securities and Exchange Commission. Zafgen would use the cash to gear up a slate of mid- and late-stage trials for its fat-burning drug candidate, beloranib. Zafgen would trade on the Nasdaq under the ticker symbol “ZFGN.”

Leerink Partners, Canaccord Genuity, Cowen and Co., and JMP Securities are underwriting the offering.

Zafgen has corralled close to $104 million in private financing since its inception in 2005, most recently a $45 million Series E round in December. Atlas Venture and Third Rock Ventures each hold big stakes—35.6 percent and 35.4 percent of Zafgen’s stock respectively. Alta Partners (7.4 percent) and Fidelity Investments (6.0 percent) also hold large portions of Zafgen’s equity.

The market for obesity drugs is a challenging one—appetite-suppressing drugs like the ones sold by Arena Pharmaceuticals (NASDAQ: ARNA) and Vivus (NASDAQ: VVUS) have fallen far short of expectations, for instance. But Zafgen’s value proposition is that beloranib works differently than those drugs. Rather than tricking the body into thinking that the stomach is full, beloranib is designed to change the way the body metabolizes fat by reducing the over-production of fat in the liver that occurs in severely obese people. It does this by inhibiting the production of an enzyme called methionine aminopeptidase 2, or MetAP2. By stopping the production of MetAP2, beloranib is supposed to cause the body to release the fat and turn it into a source of fuel.

Also, Zafgen isn’t trying to ticket beloranib for the broader population of people that need to shed a few pounds. Instead, Zafgen is targeting severely obese people, and smaller subsets of patients with more rare and dangerous conditions so that it can run smaller, quicker trials and—if the data hold up and regulators approve it, of course—potentially get to market faster.

Zafgen’s largest play for beloranib is the general population of severely obese people. Zafgen envisions the drug as an alternative to bariatric surgery, a procedure in which surgeons alter or block portions of a patient’s digestive system. But getting there will require a lot of cash, and a lot of time. Zafgen noted in its IPO prospectus that it will likely have to run another mid-stage trial and “at least two” Phase 3 studies before it files an application with the FDA for approval.

So Zafgen is spreading its bets in what it hopes will be potentially more streamlined approval paths as well. The company is also testing beloranib, for example, as a treatment for those with Prater-Willi syndrome, a rare genetic disorder that causes a number of health problems in young people, among them severe overeating. Zafgen is also looking at the drug as a treatment for obesity in people who have craniopharyngioma, a rare benign brain tumor. When patients have that mass removed from their brains, their hypothalamus is often damaged, leading to abnormally high hunger and obesity.

The FDA gave beloranib orphan drug status as a Prater-Willi treatment, and Zafgen plans to seek the same designation for beloranib in craniopharyngioma-related obesity as well. That designation gives beloranib longer market exclusivity.

With the IPO cash, Zafgen aims to start a Phase 3 in Prater-Willi, a Phase 2a trial in craniopharyngioma, and a Phase 2b trial in patients with severe obesity, all this year. Zafgen also has a preclinical drug candidate called ZFG-839 for nonalcoholic steatohepatitis, nonalcoholic fatty liver disease, and other potential uses as well.

Zafgen had about $35.5 million in cash as of Dec. 31.

Ben Fidler is Xconomy's Deputy Biotechnology Editor. You can e-mail him at bfidler@xconomy.com Follow @benthefidler

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