Update from 7:09 am EST:

Zafgen finally disclosed substantive information. Here is the company's statement:


"Zafgen recently learned of a patient death which occurred in the Company's ongoing double-blind, randomized, placebo-controlled Phase 3 bestPWS study of beloranib in Prader-Willi Syndrome, a rare genetic disorder with a high rate of mortality linked to obesity and its co-morbidities.  The cause of death remains unknown at this time.  According to normal practice, the event was reported to the U.S. Food and Drug Administration, at which point the Agency initiated a discussion with the Company.  The Company is working with the Agency to expedite a review and understanding of this event, and to determine implications of the event on the conduct of the trial, and anticipates providing an update as its discussions with the Agency progress.  The thoughts of the Company are with the family of the patient at this time.  Zafgen remains committed to ensuring the safety of all patients enrolled in its studies."


BOSTON (TheStreet) -- Zafgen (ZFGN)  finally reacted to the two-day, 54% plunge in the company's stock price. On Tuesday night, Zafgen CFO Patty Allen sent the following email to analysts, some shareholders and reporters:

We have received a number of inquiries from the investment community. As you are aware, we do not comment on share price movement or market speculation. We appreciate the concerns of our stakeholders. Zafgen remains committed to developing novel therapies to improve the health and well-being of patients affected by obesity and complex metabolic disorders.

Wow. Not helpful at all.

There is something very wrong at Zafgen. No rational company allows its shareholders to suffer extreme losses because of a "no comment" policy on market speculation. If the reasons for Zafgen cancelling two investor meetings this week were benign, the company would have said so quickly and this trainwreck would have been avoided.

Some have speculated Zafgen's undisclosed "news" might be positive, but again, if that were so, the company would have stepped in to stop the extreme losses in its stock price.

Zafgen shares closed Tuesday at $15.75, a loss of 29% on top of the 35% slide Monday. More than $500 million in shareholder value has been wiped out.

Zafgen might be unable to tell investors what's happening inside the company because it hasn't collected all the information it needs. But even if this is true, allowing the stock to trade in the panic-stricken interregnum is insane. Zafgen should halt trading in its stock until it can communicate with shareholders. I've been writing about biotech stocks for almost 15 years and I can't remember a situation like Zafgen's.

In the absence of information, investors will speculate on what's going on inside the company. Investors are assuming the meetings were called off because something has possibly gone wrong with Zafgen's lead drug beloranib. A phase III study of beloranib is underway with initial results expected in the first quarter of next year. Beloranib is an obesity drug which works by altering the way the body metabolizes fat. The initial phase III study is targeted at patients with Prader-Willi Syndrome, a rare disorder which causes life-threatening overeating.

 

 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.