For those who are not completely caught up, the last 6 months for Zafgen (NASDAQ:ZFGN) have unfolded uniquely:
September 16th, 2015
- Zafgen President Patrick Loustau presents at the Morgan Stanley Global Healthcare Conference and touts Beloranib as a future rival to surgical obesity interventions. Shares exceed $45.
- Multiple Board of Directors take the opportunity to exercise options and take profits, resembling a pump-and-dump.
September 28th, 2015
- Zafgen announces transition of Board of Directors. Two biotech startup strategists take their profits and exit and two rare/orphan disease experts join in their place. The pump-and-dump is confirmed.
October 9th-13th, 2015
October 14th, 2015
- Zafgen issues statement of patient death. At which point a partial clinical hold was instituted by the FDA. Trials are halted and data is determined to be sufficiently powered for efficacy determination. A six-month open label extension (OLE) is offered to patients and families of bestPWS ZAF-311 that would like to continue receiving the study drug.
October 23rd, 2015 and onward
- Multiple class action law suits commence accusing Zafgen of securities fraud for withholding vital safety information pertaining to thromboembolic events.
December 1st, 2015
December 2nd, 2015
- FDA places Beloranib IND on complete clinical hold.
- Both currently ongoing trials, Phase 3 bestPWS ZAF-311 and Phase 2B ZAF-203, were deemed to have acquired enough data to power statistically significant efficacy results.
January 20th, 2016
- bestPWS ZAF-311 achieved its co-primary efficacy endpoints of statistically significant reduction in both bodyweight and hyperphagia-related behaviors.
- 6 months of treatment with the 2.4 mg and the 1.8 mg doses of Beloranib resulted in 9.45% and 8.2% reductions in body weight relative to placebo, respectively.
- 6 months of treatment with the 2.4 mg and the 1.8 mg doses of Beloranib also resulted in reductions of hyperphagia-related behaviors of 7.0 units and 6.3 units relative to placebo, respectively, as measured by the Hyperphagia Questionnaire for Clinical Trials (HQ-CT).
- Which in practical language translates to: "the PWS Caregiver Summit received strong testimony from parents about the positive effects they felt Beloranib had on their children, and their dismay about having to stop the drug."
February 18th, 2016
- Phase 2B ZAF-203 trial evaluating Beloranib in the treatment of severe obesity in the general public complicated by type 2 diabetes (T2DM) achieved its primary efficacy endpoint (reduction in body weight) and a key secondary endpoint (absolute reduction in HbA1c)
- 26 weeks of treatment with the 1.8 mg and the 1.2 mg doses of Beloranib resulted in 12.7% and 13.5% reductions in body weight, respectively, compared with a reduction of 3.1% for placebo. Patients enrolled in both the 1.8 mg and 1.2 mg treatment arms also achieved an average absolute reduction in HbA1c of 2.0% compared to a reduction of 0.6% for placebo.
- An imbalance of venous thromboembolic events was substantiated by ZAF-203 trial and the current count is 6 adverse events and 5 serious adverse events related to thrombosis observed across 9 clinical trials evaluating ≈400 patients who have been exposed to the study drug. A 2.75% incidence of thromboembolic events to this point. All events have confounding variables. Most importantly though, 2 PWS patients expired from pulmonary embolism (PE).
The Golden Question: Do the benefits of Beloranib outweigh the potential risks?
FDA officials have a challenging task in answering this question. The first step is to consider the potential benefits. The easiest way to understand the efficacy of any therapy is to place it in a relative frame of reference. In the case of Beloranib that is accomplished by comparing it to its currently FDA approved alternatives. The figure below provides a visual comparison of Beloranib's efficacy relative to currently approved pharmacological therapies for obesity.
But first a " Beloranib 1 year estimate" disclaimer:
Since there has only been significant data for six months of Beloranib therapy at this time a one year estimate was generated. The estimate is a modest extrapolation of what a year on Beloranib may translate to. It's built upon there being a continued lack of tolerance to Beloranib's mechanism of action. Furthermore, it is not a simple doubling of the 6-month efficacy because of the following analogy: The lighter the vehicle, the less energy it requires to transport it. This becomes a relevant analogy when you consider that the human body, for all intents and purposes, is a vehicle for transporting the human brain. So a human that has already lost 12 kg will burn less calories (is more efficient) transporting their brain throughout the day than their former heavier self. This would result in a gradually decreasing daily caloric deficit and a corresponding gradually decreasing rate of weight loss. This reasoning assumes all other variables are held constant.
The Takeaway Message: Beloranib, at 6 months, is 50% more effective than any currently FDA approved pharmacological obesity treatment at 1 year.
There is good reason to be optimistic about continued weight loss beyond 26 weeks as the data, sampled from Zafgen's ZAF-203 Beloranib in Obese Subjects with T2DM presentation, demonstrates.
There appears to be no discernible development of tolerance to Beloranib's mechanism of action. Also worth considering is that CEO Thomas Hughes stated in a past conference call that Beloranib has demonstrated continuous efficacy well beyond a year in animal models.
Loss Aversion Reinforced Safety Concerns:
The second half of The Golden Question is the real dilemma for the FDA. When the potential costs of Beloranib's safety are considered from the tip-of-your-nose perspective it's easy to prematurely conclude the two deaths were attributable to Beloranib. If this were an antihypertensive medication and the inclusion criteria were stage 2 hypertension, then the plug, rightfully, would have been pulled already. The clinical trial mental shortcut/rule of thumb: 'patients on experimental drug died, patients on placebo did not, therefore the drug kills' would serve its purpose in halting further research on the compound. There's just not much a new antihypertensive can offer society beyond what is already out there. Therefore the potential benefit is not worth the effort of clarifying its safety profile. On the other hand, a breakthrough obesity treatment would be invaluable to humanity because one does not currently exist. Therefore effort should be made to avoid hastily jumping to conclusions over one's potential safety. Outspoken short sellers omitted this fact while leveraging the most powerful form of loss aversion. There is nothing more valuable to the typical human being than continuing to exist. Correspondingly, there is no aversion more powerful than that for the loss of a loved one. Credit is due, as these short sellers understand how to leverage Danial Kahneman's Nobel Prize earning work on prospect theory which states: When choosing between probabilistic outcomes that involve risk, one is inclined to make decisions based on the potential value of losses and gains and losses (such as the loss of life) weigh at least twice as heavy on the mind as potential gains. For that reason, when one is unsure, he or she errors on the side of avoiding losses. This psychological principle has led to many missed opportunities for the unsure investor and large gains in capital for the predatory outspoken short sellers. As a result, current stake in Zafgen is selling for pennies on the dollar and is primed for as much as a 300% jump on the upcoming FDA decision.
The FDA and the Bigger Picture:
FDA officials are expected to be pharmacoeconomically savvy and to be conscientious of the potential fiscal impact their decisions have on society. Currently, there are approximately 640 million obese people worldwide. The most recent global survey of over 19 million people predicts that if the current trend continues about one-fifth of adults will be obese by 2025 and the analysis of the survey concluded, " If post-2000 trends continue, the probability of meeting the World Health Organization's global obesity target is virtually zero." This recently released information reinforces that nothing is currently working to slow down the weight gain of our species. Furthermore, advances in technology and globalization are creating a world of abundance that will only foster the growth of waistlines around the world. Bill Dietz, director of the Sumner M. Redstone Global Center for Prevention and Wellness at George Washington University was quoted in a recent Bloomberg article as saying, " Governments need to prepare for the jump in medical costs that accompany unhealthy weight and focus on prevention now to avoid higher costs in the future. They should be as nervous as a cat on a hot tin roof about the tsunami of diabetes that's coming their way. The cost of this rise in the prevalence of obesity is going to be staggering." Current estimates put the healthcare costs of obesity around $200 billion per year in the United States, translating to trillions of dollars over the next decade at the expense of insatiable appetites. Without the discovery of a Viagra-esque breakthrough obesity treatment, the wallets and bank accounts of all will become continually more flaccid as society indefinitely shoulders the burden of paying for the damage done by the unrelenting hunger of the masses.
With weight loss of approximately one pound per week more than placebo, MetAP2 inhibitors have demonstrated the efficacy of what could be considered a breakthrough obesity treatment. They have the physiological potential to be exactly what humanity needs in order to keep our bank accounts fat with conserved capital. Cardiometabolic data from previous trials as well data from the most recent phase III trials demonstrated Beloranib's ability to induce improvements in LDL, total cholesterol and the inflammatory marker CRP, while maintaining lean body mass. Results all indicative of natural, healthy weight loss. This unprecedented potential has not gone unnoticed by the FDA.
The Ambiguous Safety of MetAP2 Inhibitors:
Are they safe or specifically, is Beloranib safe? The current best answer to that question is that it can't be known yet. Not enough data has been gathered and there are too many confounding variables to still make sense of. The 2 tragic deaths of PWS patients from thromboembolic disease and the other 9 events across the 9 clinical trials to this point have shined the light on a correlation, but as any true statistician knows, correlation does not imply causation.
This thromboembolic correlation is currently being explored to the deepest extent by Zafgen. The FDA has requested they put together a briefing packet in which they address the following 3 key aspects regarding Beloranib's safety and efficacy:
1) An explanation of the significance of the Hyperphagia Questionnaire for Clinical Trials (HQ-CT) that was used for assessing satiety in bestPWS ZAF-311.
- The FDA has never attempted to assess the efficacy of a compound using this objective attempt to measure varying degrees of satiety and for that reason would like clarity on its utility.
- Zafgen is collecting testimonials from family and caregivers of patients to clarify the relationship between the HQ-CT score and clinical impact on satiety.
2) An integrated assessment of safety across all trials.
- This will be a due diligence analysis of the blood work as it evolved through therapy in order to gain a deeper understanding of the effects of Beloranib and MetAP2 inhibition on human physiology.
3) A thorough analysis of the patients which experienced thromboembolic events while on Beloranib.
- An effort to identify common and contributing variables amongst the high risk group (i.e. lab work and predisposing conditions, etc.)
- The end goal will be to apply these findings in order to develop an effective mitigation strategy (e.g. exclude these patients from use, or utilize prophylactic anticoagulants or antiplatelet medications in these patients during Beloranib therapy.)
Thromboembolic Disease and PWS: The Overlooked Cause?
Zafgen has also taken it on themselves to survey the families and caregivers of the PWS population in an effort to identify if the thromboembolic incidence is naturally higher in this patient population than previously known. According to Zafgen CEO Thomas Hughes, early results of these surveys indicate this to be the case.
These findings are not surprising when you consider the obstacles to obtaining a conclusive pulmonary embolism diagnosis. In the general public this diagnosis is often missed as there is continued difficulty in the diagnosis of this disease. Obtaining a confirmed PE in the PWS population postmortem could be compared to trying to find a needle in a haystack of health issues. The gold standard and most convenient method used to identify a PE with high sensitivity postmortem is by computed tomography pulmonary angiography (CTPA.) Unfortunately, the vast majority of PWS patients will not fit in a CTPA scanner, and for that reason its use is contraindicated in the morbidly obese population. The other prevalent method for diagnosing a PE is a ventilation/perfusion (V/Q) scan, but this technique has no utility postmortem as it requires both the respiration and blood flow of a living body to be performed. Couple the diagnostic hurdles with the perspective of grieving parents whom have known for some time that their child was likely to succumb to their genetic disease at an early age (psychologically predisposing them to not demand difficult postmortem diagnostic challenges) and it is predictable that many pulmonary embolisms would go undiagnosed as the cause of death. This would especially be the case if the individual were to pass in their sleep. It would be too easy to attribute the cause of sudden death to obstructive sleep apnea, a respiratory condition suffered, to varying degrees, by over 75% of PWS patients. With that in mind, when Dr. James Loker's PWS Leading Cause of Death data (below) is reconsidered it becomes possible to imagine that half of the previously determined respiratory causes of death were actually undiagnosed pulmonary embolisms, shifting the PE cause of death rate in the PWS population to near 25%, and providing further evidence of an illusory correlation between Beloranib and thromboembolic disease.
In the end, it is still very likely that Beloranib will only be found guilty of being in the wrong place at the wrong time. Zafgen's required diligence in identifying the cause of death has provided the only evidence of their implication, and furthermore all thromboembolic events to this point have confounding variables that are just as likely to blame. Only more data, from more phase 3 trials will reveal the truth, a fact the FDA should soon confirm.
The Next Steps:
Zafgen will be submitting this packet to the FDA as soon as reasonably possible, if they haven't already. The FDA will then have 30 days to make a decision on Beloranib's future. The FDA's response will most likely go one of three ways:
1) Termination of the Beloranib program, sending Zafgen back to the drawing board, likely spelling the end of their organization.
2) The FDA will remove the clinical hold and allow for another PWS and or hypothalamic injury associated obesity (HIAO) Phase 3 trial with a risk evaluation mitigation strategy (REMS) in place.
3) The FDA will grant orphan drug status approval for use in PWS and HIAO.
Outcome number 2 is a near certainty at this stage. Sometime in the near future, when the FDA's decision is made public, Zafgen's value will see a triple digit percent jump within a 24 hour period. All that jumped ship will scramble to get back on board before it becomes too expensive to do so. Zafgen's long term value will still remain undetermined until more data is collected, but a short-term spike is almost definitely in its near future. Currently ZFGN has a market cap of around $150 million. If it turns out Beloranib is innocent of the current accusations recent data correlations have generated, then it's not implausible to say Zafgen's market cap could be approaching $150 billion ten years from now. A fair value for a company that would have the best potential answer to a trillion dollar problem.
Rationale for potential $150 billion valuation:
- 640 million obese worldwide
- Assumed 15% (96 million) receive one year of treatment over the next ten years.
- $2,000 per year cost of treatment
- $192 billion in revenue
Disclosure: I am/we are long ZFGN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.