Zafgen Hauls In $96M in Upsized IPO

Xconomy Boston — 

Apparently, Wall Street is buying into Zafgen’s plan to cut the fat.

The Cambridge, MA-based startup priced its IPO late Wednesday at the top of its projected range, selling 6 million shares—1 million more than it initially planned to sell—at $16 apiece. That means Zafgen has raised some $96 million before discounts due to underwriters, a number that could increase if its underwriters exercise their right to buy another 900,000 shares at the IPO price. Zafgen will begin trading tomorrow on the Nasdaq under the ticker symbol “ZFGN.”

Zafgen’s underwriters are Leerink Partners, Cowen and Co., Canaccord Geunity, and JMP Securities.

Zafgen was seeded by Atlas Venture in 2006, incubated within the firm for 18 months, and initially run by Atlas partners Peter Barrett (CEO) and Bruce Booth (COO) before former Novartis scientist Tom Hughes took over in the lead role. Barrett still chairs the board of Zafgen, which has raised some $104 million in venture dollars from the likes of Atlas, Third Rock Ventures (which held 35.6 percent and 35.4 percent of the stock before the IPO, respectively), Alta Partners (7.4 percent), and Fidelity Investments (6.0 percent).

The company was formed to build off of research from the Boston Children’s Hospital which found that drugs that stopped blood vessels from forming might also help shrink fat tissue. That hypothesis turned out to be wrong, but the small molecule drug Zafgen tested, now known as beloranib, worked in animal studies anyway—just for a completely different reason. It changed the way the body metabolized fat by inhibiting the production of an enzyme called methionine aminopeptidase 2, or MetAP2. By stopping the production of MetAP2, beloranib is supposed to cause the body to release the fat and turn it into a source of fuel—a far different mechanism than the appetite-suppressing drugs sold by companies like Arena Pharmaceuticals (NASDAQ: ARNA) and Vivus (NASDAQ: VVUS).

Zafgen has also chosen to develop beloranib not for the folks that need to shed a few pounds, but for severely obese people, and smaller groups of patients with rare and dangerous conditions. The idea is that Zafgen can run smaller, quicker trials and—if the data hold up and regulators approve it—potentially get to market faster.

Zafgen’s largest, and most cost-consuming play for beloranib is the general population of severely obese people, in which the drug would be an alternative to bariatric surgery. Zafgen noted in its IPO prospectus that it will likely have to run another mid-stage trial and “at least two” Phase 3 studies before it files an application with the FDA for approval.

Because of that, Zafgen is also aiming for more streamlined approval paths as well. The company is also testing beloranib, for example, as a treatment for those with Prader-Willi syndrome, a rare genetic disorder that causes a number of health problems in young people, among them severe overeating. Zafgen is also looking at the drug as a treatment for obesity in people who have craniopharyngioma, a rare benign brain tumor.

The FDA gave beloranib orphan drug status as a Prader-Willi treatment, and Zafgen plans to seek the same designation for beloranib in craniopharyngioma-related obesity as well. That designation gives beloranib longer market exclusivity.

Zafgen plans to use the IPO cash to start a Phase 3 in Prater-Willi, a Phase 2a trial in craniopharyngioma, and a Phase 2b trial in patients with severe obesity, all this year. Zafgen also has a preclinical drug candidate called ZFG-839 for nonalcoholic steatohepatitis, nonalcoholic fatty liver disease, and other potential uses as well.