Business context and reporting period
This is Zafgen, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018, filed November 9, 2018. The request metadata names Larimar Therapeutics, Inc.; that does not match the registrant identified in the filing.
Zafgen was a clinical-stage biopharmaceutical company developing MetAP2 inhibitors for metabolic diseases. Its lead candidate, ZGN-1061, was in Phase 2 development for type 2 diabetes; ZGN-1258 was in IND-enabling nonclinical development, initially targeting Prader-Willi syndrome (PWS). The company had no approved products or product revenue.
Financial results and liquidity
Amounts below are in millions of U.S. dollars unless stated otherwise.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $11.830 | $9.723 | $36.472 | $29.928 |
| General and administrative expense | $3.339 | $3.117 | $9.959 | $9.713 |
| Operating loss | $(15.169) | $(12.840) | $(46.431) | $(39.641) |
| Net loss | $(15.067) | $(12.585) | $(46.798) | $(38.943) |
| Basic and diluted loss per share | $(0.41) | $(0.46) | $(1.53) | $(1.42) |
No meaningful revenue margin was reported because the company had no revenue. Operating expenses were primarily research and development.
- At September 30, 2018, cash and cash equivalents were $45.141 million and marketable securities were $82.691 million, totaling $127.832 million. Total current assets were $131.469 million; total current liabilities were $11.164 million.
- Operating cash use for the first nine months was $39.653 million, versus $33.948 million in 2017. Investing activities used $21.134 million; financing activities provided $65.151 million, principally from the July 2018 stock offering. Cash and cash equivalents increased $4.364 million.
- Debt had $20.0 million principal outstanding; its reported carrying amount was approximately $20.5 million, including accrued final-payment interest. The balance sheet classified $3.636 million as current and $16.844 million as long-term. The loan bears a variable rate of prime plus 1.25% and includes an 8% final payment.
- Stockholders’ equity was $103.937 million and accumulated deficit was $336.375 million. The July offering of 9.2 million shares at $7.50 per share generated approximately $64.6 million net proceeds.
Material changes versus prior comparable periods
- Q3 2018 net loss increased by $2.482 million year over year; nine-month net loss increased by $7.855 million.
- Nine-month R&D expense rose $6.544 million. The new ZGN-1258 program accounted for $8.359 million of reported program costs, alongside higher discovery, personnel, and stock-based compensation costs. Lower ZGN-1061 nonclinical and manufacturing expense partly offset these increases.
- Interest expense increased to $1.399 million for the first nine months, primarily reflecting the Silicon Valley Bank term loan; the prior-year period included the earlier credit facility, repaid in December 2017.
- Cash and cash equivalents plus marketable securities increased from $102.052 million at December 31, 2017 to $127.832 million at September 30, 2018, chiefly supported by the July equity offering.
Outlook, commentary, and risks
- Management stated that available cash, cash equivalents, and marketable securities were expected to fund planned operations, capital expenditures, debt repayments, and liquidity requirements for at least one year from the report’s issuance date. This estimate depends on assumptions that may prove incorrect; the company expected continuing losses and anticipated needing additional financing.
- Management planned to report results from the higher-dose ZGN-1061 Phase 2 arm, up to 1.8 mg, in early 2019. The initial 0.9 mg Phase 2 data were described as meeting primary objectives, with a favorable safety and tolerability profile and no treatment-related serious adverse events or cardiovascular safety signals observed to date. These early results do not establish later-stage safety or efficacy.
- The company planned to begin ZGN-1258 Phase 1 development by the end of Q1 2019, subject to supportive nonclinical and regulatory progress.
- Key risks include clinical failure or delay, potential thrombotic or other adverse effects given the history of first-generation beloranib, regulatory requirements and trial costs, reliance on contract manufacturers and research organizations, patent and competition risks, and the need for additional capital. The term loan is secured by substantially all personal property other than intellectual property and includes minimum-liquidity requirements and restrictive covenants.
- The filing reported no material litigation and no material changes to contractual obligations outside the ordinary course. Management said disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: the supplied metadata says Larimar Therapeutics, but the filing is for Zafgen, Inc.
- Review subsequent ZGN-1061 clinical data, including dose-response, duration, and monitoring for thrombotic and cardiovascular risks.
- Check whether ZGN-1258 entered clinical development on the stated timetable and whether nonclinical findings supported progression.
- Assess actual cash burn, runway, and compliance with the term loan’s liquidity covenant, including scheduled principal payments beginning in 2019.
- Consider the dilution from the July 2018 offering and the company’s stated need for future financing.