[Updated, 1:30 pm ET] Two days after it was reported that obesity drug maker Zafgen pulled out of upcoming events without explanation, the company revealed today that a patient in a Phase 3 study of its obesity drug, beloranib, died. Zafgen (NASDAQ: ZFGN) said the cause of death “remains unknown at this time,” and reported the findings to the FDA.
“The company is working with the agency to expedite a review and understanding of this event, and to determine the implications of the event on the conduct of the trial,” Zafgen said in a statement.
The patient in question suffered from Prader-Willi Syndrome, which causes severe overeating and a bunch of other potentially serious health problems. Zafgen was testing beloranib in Prader-Willi patients as a way to show the drug could have an effect in the most desperate obesity cases. Zafgen is also testing the drug in a more general population of severely obese patients, but it moved Prader-Willi to the forefront so it could run smaller, quicker trials and potentially get to market faster.
The company will provide an update as the talks with FDA progress.
[Updated with notes from analyst] In a note to investors on Wednesday after speaking with Zafgen CEO Tom Hughes, RBC Capital Markets analyst Simos Simeonidis wrote that Zafgen still doesn’t know whether the patient who died was on beloranib or a placebo. Two thirds of the patients in 108-patient study were on either a low or high dose of Zafgen’s drug. “Thus, not only do we not know if the death was drug-related, we don’t even know if the patient was on the drug arm,” Simeonidis wrote.
The news comes at the end of a crazy two days for Zafgen, while maintaining silence.
Bloomberg and TheStreet.com first reported on Monday that Zafgen had cancelled some investor meetings. Management didn’t provide a reason. Zafgen’s spokesperson referred Xconomy to its CFO, Patty Allen, who eventually responded on Tuesday night with this statement to several news outlets: “We have received a number of inquiries from the investment community. As you are aware, we do not comment on share price movement or market speculation. We appreciate the concerns of our stakeholders. Zafgen remains committed to developing novel therapies to improve the health and well-being of patients affected by obesity and complex metabolic disorders.”
Investors feared the worst, driving shares down 35 percent on Monday and then another 29 percent on Tuesday as Zafgen remained silent, other than its statement on Tuesday night. Shares are down yet another 20 percent following the news this afternoon.
Analysts, who also weren’t privy to the news, began speculating. Simeonidis, for instance, issued a note weighing all the potential options: a buyout, great data, or unexpectedly bad news about beloranib.
With the bad news, Zafgen now trades around $12.50 a share—well below its $16 per share IPO price in June 2014, and the first time that’s happened since Zafgen went public. Zafgen traded at $46 a share less than a month ago, and closed at $34.40 on Monday as news of the cancellations spread.
Until now, Zafgen’s story was serendipitous. Founded and incubated by Atlas Venture, the original premise for the company was that drugs that stopped blood vessels from forming might also help shrink fat tissue. That hypothesis was wrong, but beloranib, the drug it took forward, appeared to work anyway, just for a completely different reason—it changed the way the body metabolized fat by inhibiting the production of an enzyme called methionine aminopeptidase 2, or MetAP2. By doing so, beloranib was causing the body to release the fat and turn it into a source of fuel.
Zafgen rode rousing results in early- and mid-stage trials into an upsized IPO in 2014. Along the way, it decided to target beloranib for severe obesity associated with rare conditions—things like Prader-Willi, which leads to severe overeating along with a host of other health problems, and obesity triggered by an injury to the hypothalamus. Zafgen has stayed away from using beloranib for people who just need to lose a few pounds. However, the drug is also being tested for a more general population with severe obesity; Zafgen wants to position it as an alternative to bariatric surgery.
At the time of its IPO, Zafgen reported that the most common side effects from beloranib were nausea, vomiting, diarrhea, and sleep trouble.
In addition, Zafgen, citing preclinical animal studies, also noted in regulatory filings that beloranib “may be immunosuppressive”—but as of then had not seen evidence of that in human subjects.
But at that point, in 2014, Zafgen had yet to test whether high doses of beloranib over a long period of time would reveal deeper problems. . That significant question was being put to the test in its first Phase 3 trial, for Prader-Willi. The trial enrolled 108 people to take a 2,4 mg dose over six months—a higher dose and a longer dosing period than the company had ever tested before. Zafgen enrolled patients aged 12 to 65 who were either overweight or obese.
It’s unclear at this point what the next steps are for Zafgen. The company had $220.1 million in cash on hand as of June 30.