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Summary

  • ZFGN is a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity.
  • In its Phase 2a clinical trials, ZFGN observed reductions in body weight, body mass and body fat content in patient populations and reductions in hyperphagia-related behaviors.
  • In January 2013, the U.S. Food and Drug Administration granted orphan designation for ZFGN’s application to treat PWS with beloranib.

Based in Cambridge, MA, Zafgen (NASDAQ:ZFGN) scheduled a $75 million IPO on the Nasdaq with a market capitalization of $312 million at a price range midpoint of $15 for Thursday, June 19, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint managers: Leerink Partners, Cowen & Company

Co-Managers: Canaccord Genuity, JMP Securities

End of lockup (180 days): Tuesday, December 16, 2014

End of 25-day quiet period: Monday, July 14, 2014

Summary

ZFGN is a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity.

Excess weight causing 1 in 10 deaths, top doctor warns here.

Valuation

Glossary

Valuation Ratios

Mrkt Cap

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

ZAFGEN

$312

no rev

-17.5

3.2

3.2

24%

Conclusion

The rating on ZFGN is neutral.

In its Phase 2a clinical trials, ZFGN observed reductions in body weight, body mass and body fat content in both patient populations and reductions in hyperphagia-related behaviors in PWS patients.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ZFGN is a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by obesity.

Excess weight causing 1 in 10 deaths, top doctor warns here

Beloranib, ZFGN's lead product candidate, is a novel, first-in-class, twice-weekly subcutaneous injection being developed for the treatment of multiple indications, including obesity and hyperphagia, or insatiable life-threatening hunger and hunger-related behaviors, in Prader-Willi Syndrome, or PWS, craniopharyngioma-associated obesity, and severe obesity in the general population.

PWS is a rare and complex genetic disorder characterized by physiologic, cognitive and behavioral symptoms, including hyperphagia and obesity.

Clinical trials

ZFGN recently completed two Phase 2a clinical trials evaluating beloranib's ability to reduce body weight and to improve hyperphagia, one in PWS patients and one in severely obese patients.

In its Phase 2a clinical trials, ZFGN observed reductions in body weight, body mass and body fat content in both patient populations and reductions in hyperphagia-related behaviors in PWS patients.

Orphan drug designation

In January 2013, the U.S. Food and Drug Administration, or FDA, granted orphan designation for ZFGN's application to treat PWS with beloranib.

ZFGN plans to initiate its Phase 3 clinical program, consisting of two Phase 3 clinical trials, of beloranib in PWS patients, with the first Phase 3 trial to start in the second half of 2014, after finalizing the program design based on ongoing conversations with the FDA and certain European regulatory authorities.

ZFGN filed an application to obtain orphan drug designation for beloranib as a treatment for PWS in the European Union in early 2014.

ZFGN believes that rare conditions such as PWS afford it an opportunity to rapidly develop and commercialize beloranib using smaller, more focused and less costly clinical trials, relative to those required to develop beloranib for the broader severe obesity population.

Hyperphagia

PWS is characterized by hyperphagia resulting at least in part from impaired functioning of the hypothalamus, an area of the brain responsible for many functions including the desire to eat.

Hyperphagia impairs the PWS patients' ability to live independently, requiring costly and constant supervision to prevent overeating.

Without supervision, PWS patients are likely to die prematurely as a result of choking, stomach rupture or tissue necrosis, or from complications caused by morbid obesity, such as right heart failure and respiratory failure.

PWS survival rates

Based on ZFGN's evaluation of published survival data, the average life expectancy of PWS patients is approximately 32 years of age.

While a small number of PWS patients are cared for in costly group homes, the majority of PWS patients are cared for in their homes, and their families undertake substantial effort to create physical barriers to eating.

These efforts result in extremely stressful environments, as caregivers often place locks and alarms on cabinets and refrigerators that contain food to impede PWS patients' efforts to obtain food at all times.

ZFGN estimates the typical annual cost of treating a PWS patient is $100,000 to $200,000, excluding the often significant costs of drug therapies related to other medical and psychological conditions and the costs of any lost time from work experienced by their families due to responsibilities related to the care of a PWS patient.

Published population studies estimate that the prevalence of PWS in the United States and in the European Union ranges from 1 in 8,000 to 1 in 50,000. PWS is diagnosed at an early age, typically in the first year of life.

Dividend Policy

No dividends are planned.

Intellectual Property

ZFGN's owned and licensed patents and patent applications relate to beloranib compositions of matter, formulations, polymorphs, methods of treating obesity using dosing regimens of beloranib and methods of treating hypothalamic obesity.

The issued U.S. and European patents generally directed to beloranib compositions of matter are exclusively licensed and will each expire in 2019.

ZFGN owns two issued U.S. patents relating to beloranib polymorph compositions of matter that will expire in 2031 and two issued U.S. patents to methods of treating obesity that will expire in 2029.

ZFGN owns pending patent applications in Europe to beloranib polymorph composition of matter and methods of treating obesity that ZFGN expects to expire, once issued, in 2031.

As of June 5, 2014, ZFGN owns four issued U.S. patents, seven pending U.S. patent applications and foreign counterpart applications, and one Patent Cooperation Treaty, or PCT, application that will allow it to seek corresponding protection worldwide, all of which relate to beloranib.

ZFGN has a license to two U.S. issued patents, one with corresponding issued foreign counterpart patents, that also relate to beloranib. ZFGN also co-owns one patent application relating to methods of using beloranib with an option to exclusively license the co-owner rights.

As of June 5, 2014, ZFGN owns seven pending U.S. patent applications with pending foreign counterpart applications and five PCT patent applications, all of which relate to its MetAP2 inhibitor program. Of these, one pending U.S. patent application with pending foreign counterpart patent applications and one PCT patent application relate to ZFGN's early-stage product candidate ZGN-839.

As of June 5, 2014, ZFGN owns two pending U.S. patent applications with pending foreign counterpart patent applications, one pending PCT patent application and two U.S. provisional patent applications that relate to its second-generation MetAP2 inhibitor program.

Competition

There are many public and private biopharmaceutical companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to ZFGN's product candidates or address similar markets.

It is probable that the number of companies seeking to develop products and therapies similar to ZFGN's products will increase.

5% stockholders

Atlas Venture Fund VII, L.P. 35.6%

Third Rock Ventures, L.P. 35.4%

Alta Partners VIII, L.P. 7.4%

Entities Affiliated with Fidelity Investment 6%

Use of proceeds

ZFGN expects to net $67 million from its IPO. Proceeds are allocated as follows:

$23 million to advance the clinical development of beloranib as a treatment for obesity and hyperphagia in PWS patients through a Phase 3 clinical trial in the United States and initiation of a PWS Phase 3 clinical trial in the European Union;

$10 million to advance the clinical development of beloranib as a treatment for craniopharyngioma-associated obesity through a Phase 2a clinical trial and the initiation of pivotal clinical trials;

$8 million to initiate IND-enabling studies and clinical development of ZGN-839 through the initiation of Phase 1 clinical development;

$6 million to initiate a Phase 2b clinical trial of beloranib as a treatment for severe obesity in the general population; and

the remaining proceeds, if any, to fund new and ongoing research and development activities, working capital and other general corporate purposes.

Disclaimer: This ZFGN IPO report is based on a reading and analysis of ZFGN's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Zafgen