Cowen Downgrades Zagfen Inc (ZFGN) Following Shutting Down of a Pipeline Drug

Analyst Phil Nadeau of Cowen downgraded shares of Zafgen Inc (NASDAQ:ZFGN) from Outperform to Market Perform, after the biotech company terminated one of its pipeline drugs, beloranib, following a meeting with the FDA.

The drug had been placed on clinical hold in late 2015 following deaths in its Prader-Willi clinical program. Zafgen had hopes that it would be able to show the benefit of such a risk drug, but following a meeting with the FDA Zafgen decided the “costs, development timelines and risk associated with developing beloranib for Prader-Willi are prohibitive.”

After terminating beloranib, Zafgen will now turns its focus to ZGN-1061, a second-generation MetAP2 inhibitor that is about to enter Phase 1 for severe obesity. The FDA is known to show little tolerance for safety issues when it comes to approving obesity agents. This is why the analyst believes the market won’t give much value to the drug until Zafgen gets the drug de-risked by a legitimate clinical program, which could take several years. After beloranib’s success and no clinical data from ZGN-1061, Nadeau doesn’t find it likely that ZGN-1061 will be successful.

Furthermore, while Zafgen has enough capital until 2018, obesity trial programs take a long time and are expensive. Therefore, shareholders should expect the company to split shares in order to raise more capital, resulting in the dilution of their shares.

According to TipRanks, the analyst has a yearly average loss of 0.1% and a 43% success rate. The analyst has a 73.1% average loss when recommending Zafgen, and is ranked #2,721 out of 4,064 analysts.

TipRanks shows that out of the 4 analysts who rated Zafgen in the last 3 months, 1 gave a Buy rating and 3 gave a Hold rating. The average 12-month price target for the stock is $6.50, marking a 3.70% downside from current levels.

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