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Why Shares of Zafgen Skyrocketed Today

By George Budwell - Jan 20, 2016 at 11:08AM

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The drugmaker's experimental treatment for Prader-Willi Syndrome met its co-primary endpoints in a late-stage study.

What: Shares of Zafgen (ZFGN), a small-cap anti-obesity drugmaker, gained as much as 94% today on exceptionally high volume after the company announced that its twice-weekly injected drug, beloranib, met both of its co-primary endpoints in a pivotal late-stage study. Specifically, the company reported that treatment with beloranib caused patients with the genetically based disorder known as Prader-Willi Syndrome, or PWS, to curb their extreme eating habits and to lose a statistically significant amount of weight when compared to individuals receiving a placebo. 

So what: PWS patients presently have limited pharmaceutical options and are constantly in danger of eating to the point where their stomach bursts. As such, beloranib has the potential to be a life-saving medication for individuals afflicted with this disorder. 

Now what: The bad news is the FDA has already put a full clinical hold on beloranib because it increases the risk of severe blood clotting, and was associated with the death of at least one patient. So, Zafgen is going to have to clear up the drug's clinical status before applying for regulatory approval. 

On the bright side, Zafgen looks like it has one seriously potent fat-fighting medicine on its hands -- that is, if the company can figure out how to minimize its fairly substantial safety risks. After all, these clinical data released today show that beloranib generates far more placebo-adjusted weight loss in just six months than Orexigen Therapeutics' Contrave does in a year (9.45% vs. 5%)

Unfortunately, there's no guarantee the FDA will change its mind on the clinical hold issue, meaning that investors are probably best served by taking a cautious approach with this speculative biotech -- especially in this turbulent market. 

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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