BOSTON (TheStreet) -- In this week's Biotech Stock Mailbag, I write about two stocks I actually like!
I disagree. If you're interested in an obesity-related stock with big potential, take a serious look at Zafgen (ZFGN), not EnteroMedics (ETRM).
EnteroMedics managed to eek out a lukewarm but positive recommendation from an advisory panel this week. As I cautioned previously, FDA medical device advisory panels tend to be circus-like affairs, so no big surprise VBLOC passed muster despite two failed clinical trials and mediocre efficacy (8.5% weight loss, adjusted for the sham device.) All too often, these panels give the thumbs-up to ineffective devices that are deemed "safe." Fortunately, doctors and insurance companies tend to have higher standards, which is why EnteroMedics' big challenge will be finding any doctor willing to implant VBLOC into their obese patients. Don't count on it.
Let's pivot to Zafgen, which priced 6 million shares at $16 in its public debut Wednesday night. As I wrote in 2012 when Zafgen was still a private company, its lead drug beloranib works in the liver to reset or normalize a patient's metabolism. Obese people, especially those who are morbidly obese, have livers that work overtime converting food into stored fat instead of energy to be burned off by muscle. When these obese patients are treated with beloranib, their livers stop making fat and instead start converting food into energy, like the metabolism of a lean person. This is different from the way drugs like Vivus' (VVUS) Qnexa or Arena Pharma's (ARNA) Belviq work, which is by altering brain chemistry so that obese people feel satiated or have less desire to eat. Beloranib is given as an injection, which makes it less convenient than weight-loss pills, but certainly better than Enteromedics' implantable pacemaker.
The comparison between Zafgen and EnteroMedics is apt because both companies are targeting morbidly obese patients who would be candidates for lap band (gastric bypass) surgery. In a small phase IIa study, belonarib-treated patients lost 10.3% of their body weight, adjusted for placebo, after 12 weeks. EnteroMedics' VBLOC-associated weight loss (adjusted for sham control) was 8.5% after one year. Remember, we're talking about twice-weekly injections (beloranib) versus VBLOC, an implanted device which wraps electrical cords around your vagus nerve and delivers 10-12 hours of zaps per day.
Zafgen isn't really close to advancing beloranib towards an FDA filing for severe obesity. Another phase II study and large phase III studies still need to be conducted. However (and this is important) Zafgen is also developing the drug as a treatment for Prader-Willi Syndrome (PWS), a rare genetic disorder which causes patients to become obsessed with food and eating. PWS patients have enormous appetites, and to prevent them from literally eating themselves to death, they have to be monitored constantly. Caregivers must lock cabinets and refrigerators to keep PWS patients away from food.
Beloranib might be an effective treatment for PWS, so Zafgen is planning a phase III study to start later this year. If the study is positive, Zafgen will have a shortcut to FDA approval for beloranib, and in a potentially lucrative and protected orphan disease indication. That's smart clinical development. Zafgen management knows what they're doing. As I said above, Zafgen just went public on Wednesday night and the next round of beloranib clinical trials in multiple indications won't start until later this year. That means the Zafgen story won't play out immediately, but to me, it's the most promising obesity-related therapy out there.