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Here's Why Zafgen Inc Rose as Much as 21.1% Today

By Maxx Chatsko – Mar 7, 2018 at 12:24PM

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The biopharma announced full-year 2017 results and several business updates.

What happened

Shares of clinical-stage biopharma Zafgen (ZFGN) rose more than 21% today after the company announced full-year 2017 earnings. As a development-stage company, there weren't any important financial metrics for investors to pore over aside from the year-end cash and cash equivalents balance, which stood at $102 million.

More important for investors was a slew of updates from the pipeline. Zafgen reported positive interim results from an ongoing phase 2 trial for a drug candidate being evaluated as a potential treatment for type 2 diabetes. It also announced a new preclinical drug candidate targeting the rare genetic disease Prader-Willi syndrome was added to the pipeline.

Despite the sharp increase in early trading, Zafgen shares gave back most of their gains shortly thereafter. As of 11:40 a.m. EST, the stock had settled to a 3% gain.

A bar chart with the last and tallest bar represented by a red arrow pointing up on a springboard.

Image source: Getty Images.

So what

Investors shouldn't bank on this being the news that can turn the company's long history of misfortune around.

The interim data from the phase 2 trial evaluating the company's lead drug candidate, ZGN-1061, in type 2 diabetes showed that the therapeutics were well-tolerated. Zafgen also reported a statistically significant improvement in lowering A1C levels, a technical term used to describe what most people simply call blood sugar levels, compared to a placebo. The drug candidate lowered A1C levels by 0.57% on the measurement scale used by physicians. So what does that mean?

Physicians consider A1C levels under 5.7% to be normal and healthy, values in the range of 5.7% to 6.4% are considered prediabetes, and readings above 6.4% usually result in a diagnosis of type 2 diabetes. However, patients can have readings of 10% or higher at diagnosis. Those patients and their doctors may target A1C levels of around 7% (read: above the "normal range") after onset, which can be obtained through a combination of changes in diet, activity levels, and medications.

How does ZGN-1061 stack up? A meta analysis of studies of various drugs aimed at reducing A1C levels found that most drugs resulted in a reduction of 1% to 1.5%. The company's drug candidate yielded a 0.57% decrease with a dose of 0.9 mg, so it's not quite up to par yet. That's why Zafgen decided to study a higher 1.8 mg dose, but it's too soon to tell if the higher dose will deliver the benefits required for a competitive type 2 diabetes drug.

Now what

The point of a phase 2 trial is to establish safety and dosing regimens for later stage trials, so there's nothing out of the ordinary for Zafgen here. Investors are encouraged that ZGN-1061 demonstrated any efficacy at all, and are looking forward to results from a higher dose. If the drug candidate yields a dose-dependent response, where higher doses have a greater therapeutic effect, then that could help boost the company's commercial potential. However, whether or not it achieves results comparable to current drugs on the market -- an A1C drop of 1% to 1.5% -- won't be known until the results are released in early 2019.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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