The curious case of Zafgen's stock and a phase 3 patient death
- Zafgen's beloranib is an investigational compound intended to treat Prader-Willi syndrome, a rare genetic disorder linked to obesity. The drug is supposed to modify the way the body metabolizes fat.
- A patient in a phase 3 beloranib trial died, the company disclosed on Wednesday. The cause of death is still unknown and the information has been communicated to the FDA. When Zafgen made the announcement, its stock fell considerably before erasing its losses (and it's up about 8% on Thursday morning trading)—but shares are still down about 40% overall since the beginning of the week. What's been raising some eyebrows is that the company refused to say or do anything as shares plummeted on news that Zafgen had canceled several investor meetings and a roadshow.
- Zafgen CFO Patty Allen said that the company has a "no comment" policy on stock activity. Investors were not mollified by her comments.
Prader-Willi syndrome is a randomly occurring non-inherited genetic disorder resulting in missing silent genes on the 15th chromosome. Currently, there is no treatment, although lifestyle-management strategies that emphasize strict control of eating have been found to be effective. Nonetheless, there is a clear unmet medical need that Zafgen is attempting to address.
The fact that there was a death in Zafgen's third phase 3 trial is simply that—a fact, and one that lacks context at this point. It's not clear whether the death was in the placebo arm or the treatment arm.
What is clear is that Zafgen handled investor concern badly. Obviously, beloranib has made it to the third phase 3 trial, passing all the safety hurdles along the way. While more communication with investors is needed, the drug still has a chance of gaining approval.
But industry oberservers are puzzled over the fact that Zafgen did nothing to inform shareholders or halt trading as hundreds of millions of dollars of its market value was wiped out. And some are already wondering if there may also be a more sinister side to this story involving insider information., StreetInsider went so far as to ask, "Who traded Zafgen on illegal insider information?"
It's true that companies need to be prudent before releasing information on something as important as a patient death. But Zafgen's even worse reaction to an already bad situation is making the investor community scratch its collective head.