Larimar Therapeutics, Inc. quarterly report, Q2 FY2016

Business context and reporting period

Filing identity: The supplied filing is Zafgen, Inc.’s Form 10-Q for the quarter ended June 30, 2016, not a filing for Larimar Therapeutics, Inc. The financial statements are unaudited.

Zafgen was a development-stage biopharmaceutical company focused on MetAP2 inhibitors. Its lead candidate, ZGN-1061, was entering Phase 1 development; ZGN-839 remained preclinical. The company had no product revenue.

Financial performance and position

Amounts below are in millions of dollars except per-share data.

• Cash flow: First-half operating cash use was $32.3 million, versus $25.5 million a year earlier. Investing activities provided $18.1 million, primarily reflecting net sales and maturities of securities; financing used $1.4 million, mainly for debt repayment. Cash and cash equivalents decreased $15.6 million to $20.0 million.
• Liquidity: Cash, cash equivalents and marketable securities totaled $150.5 million at June 30, 2016, down from $185.1 million at December 31, 2015. Current assets were $153.2 million and current liabilities $10.6 million.
• Debt: Notes payable had $4.68 million of principal outstanding; balance-sheet carrying amounts were $3.06 million current and $1.97 million long-term, including discount and final-payment accounting. The facility’s effective annual interest rate was about 10.8%; principal payments were scheduled through 2017.
• Equity and accumulated losses: Accumulated deficit was $212.4 million. Stockholders’ equity was $142.2 million, down from $169.1 million at year-end 2015.
• Margins: Revenue was zero, so revenue-based profit margins were not meaningful.

Material changes versus comparable periods

• Second-quarter net loss narrowed by $2.7 million year over year, mainly as R&D expense fell $2.4 million. Lower beloranib trial activity and lower ZGN-839 spending more than offset higher unallocated R&D costs.
• First-half net loss increased by $1.5 million year over year. Operating expenses rose $2.1 million, largely from higher G&A stock-based compensation and personnel costs; other income improved by $0.5 million.
• First-half operating cash use increased by $6.8 million year over year. The 2015 period included $130.0 million of net follow-on offering proceeds; there was no comparable equity offering in 2016.

Outlook, commentary, risks and unusual items

• Management expected existing cash, cash equivalents and marketable securities at June 30 to fund operating and capital requirements for at least 18 months, while cautioning that assumptions could prove wrong and additional financing may be needed.
• Management was screening patients for a ZGN-1061 Phase 1 study and expected initial clinical data by the end of the first quarter of 2017. ZGN-839’s IND had been withdrawn in January 2016 for additional data requested by the FDA.
• Subsequent event: On July 19, 2016, Zafgen announced it would focus resources on ZGN-1061 and suspend beloranib development. Beloranib’s IND was on full FDA clinical hold following an imbalance in thrombotic events. The company planned to reduce its workforce by about 34% to 31 employees by December 2016 and estimated restructuring charges of approximately $2.4 million, mostly in Q3 2016.
• Key development risk is whether ZGN-1061 can demonstrate an acceptable safety profile, particularly concerning thrombosis, and succeed in clinical testing. The filing notes that preclinical findings do not guarantee clinical outcomes and that further trials, including potentially extensive obesity and cardiovascular-safety studies, may be required.
• A putative securities class action relating to alleged statements about beloranib clinical trials was pending; Zafgen had moved to dismiss and said it could not estimate potential losses.
• Other disclosed exposures include reliance on third-party research and manufacturing providers, future financing needs, intellectual-property uncertainty, foreign-currency movements, and possible limits on tax-loss carryforwards. The company reported no off-balance-sheet arrangements and no material changes in contractual obligations during the first half.

Important facts for investors to verify

1. Confirm the issuer: the supplied 10-Q is for Zafgen, Inc., not Larimar Therapeutics, Inc.
2. Check subsequent disclosures on ZGN-1061 Phase 1 enrollment, safety findings and timing of results.
3. Assess the beloranib clinical hold and the implications of thrombotic events for the broader MetAP2 program.
4. Track actual cash burn, runway and financing needs against management’s estimate of at least 18 months of funding.
5. Confirm the realized restructuring charges, workforce reduction and resulting cost savings.
6. Follow developments in the securities lawsuit and any change in the company’s ability to estimate exposure.