Zafgen (NASDAQ:ZFGN) investors got a new carrot to focus on this week when the company announced data from a phase 2 clinical trial for Beloranib in severely obese patients with Type 2 diabetes. The company presented the data at the American Diabetes Association's 76th Scientific Sessions.
According to Zafgen management the data demonstrates statistically and clinically significant improvements in body weight, body composition and glycemic control.
Source of Charts - Zafgen
What Does This Mean For Investors?
Zafgen has seen the news of two patient deaths tumble its stock price. In September of 2015 the stock was trading at $45 per share. Ever since, the stock has had severe challenges in gaining any traction. Management indicates that it is meeting with the FDA and working toward how to gain approval, but the realities are that until there is concrete information on the FDA front, this equity will have a cloud over its head.
In my opinion the patient deaths in the Prader-Wiili clinical trial will ultimately lead to an approval with a very restrictive label regarding thrombosis testing. It is also my opinion that getting approval will not get this equity back to levels seen last year.
The overall anti-obesity market has been severely challenged and is having massive trouble gaining traction. Companies like Arena (NASDAQ:ARNA), Vivus (NASDAQ:VVUS) and Orexigen (NASDAQ:OREX) have all seen sales levels that are several times lower than what would be needed to drive equity appreciation or profits. In fact, branded anti-obesity treatments are on the cusp of seeing year over year sales that actually decline.
Chart Source - Spencer Osborne
Zafgen has a small advantage in that it is targeting very specific populations, but the simple reality is that adoption of new anti-obesity treatments is very slow. Zafgen will not likely gain much support if it tries to market Beloranib itself, and finding a partner may be even more challenging than getting FDA approval.
I would love for Zafgen to be an epic turn-around story, but odds are simp0ly not in its favor. In my opinion this is a speculative play on a drug that is attempting to enter a very tough sector. The best play might be sitting on the sidelines until we have more concrete data to consider. Stay Tuned!
Disclosure: I am/we are long ARNA.
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.
Additional disclosure: I have no position in ZFGN, VVUS, OREX
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