Filing summary
Entity and period: The supplied filing is Zafgen, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 14, 2019. It does not identify Larimar Therapeutics, Inc. The request describes the period as 2018 Q4, but the filing covers the full fiscal year; selected fourth-quarter results are also shown below.
Business context and reporting period
Zafgen was a clinical-stage biopharmaceutical company developing methionine aminopeptidase 2 (MetAP2) inhibitors for metabolic diseases. Its lead candidate, injectable ZGN-1061, was in development for type 2 diabetes. ZGN-1258 was being evaluated for Prader-Willi syndrome (PWS), and oral, liver-focused ZGN-1345 was advanced to development-candidate stage in Q4 2018. The company had no approved products or product-sale revenue.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data. There was no product revenue in 2018 or 2017, so conventional gross margin and operating margin are not meaningful.
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $47.9 | $40.8 |
| General and administrative expense | $13.2 | $12.2 |
| Total operating expenses | $61.1 | $53.0 |
| Net loss | $61.4 | $52.0 |
| Net loss per share, basic and diluted | $1.90 | $1.90 |
| Cash used in operating activities | $51.5 | $43.8 |
Operating expenses increased 15% and net loss widened 18% year over year. Higher ZGN-1258 spending and unallocated R&D costs more than offset lower ZGN-1061 nonclinical and manufacturing costs. R&D expense included $1.6 million of Australian R&D tax incentives, recorded as a reduction of expense.
At December 31, 2018, cash, cash equivalents and marketable securities totaled $118.1 million, compared with $102.1 million a year earlier; working capital was $108.0 million. Total assets were $121.8 million and stockholders’ equity was $93.3 million. Cash and marketable securities were $49.3 million and $68.7 million, respectively.
Notes payable had a $20.0 million principal balance, with $5.5 million classified as current and $15.2 million as long-term on the balance sheet. The Silicon Valley Bank loan bears interest at 1.25 percentage points above prime, had an effective annual rate of approximately 9.9% at year-end, and includes an 8% final payment. Debt commitments, including principal, interest and final payment, were reported as $21.6 million. The loan is secured by substantially all personal property other than intellectual property and imposes liquidity and other covenants.
Q4 2018: Revenue was $0; operating expenses were $14.7 million; net loss was $14.6 million; and basic and diluted net loss per share was $0.39. Q4 2017 operating expenses were $13.4 million and net loss was $13.1 million.
Material changes and developments
- In July 2018, Zafgen raised approximately $64.6 million net through a public offering of 9.2 million shares. It also established a $50 million at-the-market offering in November; no shares had been sold under that program by year-end.
- R&D expense rose by $7.1 million, including $11.5 million of direct ZGN-1258 costs. ZGN-1061 direct program costs fell by $7.3 million, mainly due to lower nonclinical and manufacturing spending.
- Interest expense increased to $1.9 million from $0.2 million, primarily reflecting the Silicon Valley Bank term loan.
- Cash used in operations increased by $7.7 million. Financing activities provided $66.9 million in 2018, principally from the public offering; year-end cash and cash equivalents increased by $8.6 million.
Outlook, risks and unusual items
- ZGN-1061 regulatory hold: The FDA placed the IND for the first U.S. clinical trial on full clinical hold in November 2018, citing potential cardiovascular safety risk in light of the prior compound, beloranib. Management was assessing possible paths forward and planned to request an FDA Type A meeting. The completed ex-U.S. Phase 1 and Phase 2 trials had no reported cardiovascular safety signals.
- Phase 2 results: In the 12-week type 2 diabetes trial, the 1.8 mg dose produced a placebo-adjusted A1C reduction of 1.1% and weight reduction of 2.3 kg. Three serious adverse events were reported in the 0.9 mg group; the filing states none was treatment-related, and no deaths or cardiovascular safety signals were observed. Management expected to present full results at a medical meeting in 2019.
- ZGN-1258: In March 2019, after year-end, Zafgen suspended plans to file an IND while investigating muscle-tissue degeneration and other findings in long-term rodent toxicology studies. The company said the finding appeared specific to ZGN-1258 and was absent in other animal species in long-term models.
- ZGN-1345 and PWS: ZGN-1345 was an early-stage candidate with preliminary positive results in multiple liver-disease models; further nonclinical work was ongoing. The PATH for PWS natural-history study had enrolled more than 400 of its 500-participant goal by March 2019.
- Funding and going concern considerations: Management expected existing cash and marketable securities to fund anticipated operations, capital expenditures and debt payments for at least 12 months from the filing date. The auditor emphasized that additional financing would be required to fund future operations and debt payments. Zafgen expected continuing operating losses and stated it would need additional capital for further development and commercialization; financing might not be available on acceptable terms.
- Other risks: The business depended chiefly on ZGN-1061, faced uncertainty around regulatory approval and future safety, relied on contract manufacturers and research organizations, and had no commercial infrastructure. The company reported no material legal proceedings. The auditor issued an unmodified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. The auditor did not provide an internal-control attestation.
Key investor verification points
- Confirm the issuer identity: this filing is for Zafgen, Inc., not Larimar Therapeutics, Inc.
- Track FDA requirements and any resolution of the ZGN-1061 full clinical hold, including implications for U.S. trial timing, design and costs.
- Review the complete ZGN-1061 Phase 2 data and assess the small trial’s duration, safety findings and relevance to larger or longer studies.
- Follow the investigation of ZGN-1258’s rodent muscle findings and determine whether the program resumes, changes or is discontinued.
- Monitor cash burn, financing needs and dilution, along with compliance with the term-loan liquidity covenants and scheduled repayments.
- Verify the development progress and supporting data for ZGN-1345; the filing provides no quantified clinical outlook or product-revenue guidance.