Canaccord Weighs in on Zafgen Inc (ZFGN) in Wake of Suspended Development for Weight Loss Drug Beloranib

Zafgen Inc (NASDAQ:ZFGN) is shooting for a refocus after an FDA meeting has led to suspension of future development for weight loss agent beloranib. Meanwhile, Canaccord analyst Arlinda Lee reiterated a Hold rating, while cutting the price target from $7.00 to $4.00 to reflect projected cash value for the remainder of 2016.

Zafgen will channel the failed drug’s resources into second-generation MetAP2 inhibitor, ZGN-1061- Zafgen’s other experimental solution to treat severe and complicated obesity. Until clinical data is out for Zafgen’s second alternative, Lee assigns no value to the drug; awaiting clinical results until further notice.

Lee cites several reasons for the obesity drug’s termination: an unresolved clinical hold until steps to reduce adverse effects were taken- an intact risk mitigation strategy; contrary FDA expectations to add more time than Zafgen wanted to its Phase 3 clinical trial; steep expenses; and lastly, beloranib’s sister ZGN-1061 has proved to have a “potentially better safety profile” with more chance for success and influence in the market.

The analyst has reason to “expect Ph1 ZGN-1061 single and multiple ascending dose data in 1Q17,” following safety and weight-loss evaluations of the drug over a trial period of four weeks, with Zafgen already screening patients. The company currently holds a cash flow of $151 million, with expectations to close out the year with still more than $125 million in cash flow; especially after cutting the workforce down by 34%.

As usual, we recommend taking analyst notes with a grain of salt. They are often successful in moving the stock price, but you always need to take things into perspective. According to TipRanks, Arlinda Lee is ranked #3,984 out of 4,073 analysts, withstanding an average loss of 26.1% per recommendation.

TipRanks exhibits reveal ZFGN to be a Hold. Out of 4 analysts polled in the last 3 months, all have rated Zafgen a Hold. The overall consensus price target is $6.00, marking an 85% upside from where the stock is currently trading.

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