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Zafgen faces securities class action lawsuit

A securities class action suit was recently filed against a biopharmaceutical firm following allegations that the company made misleading misrepresentations about events in its clinical trials.

The lawsuit against Zafgen Inc. was filed in U.S. District Court for the District of Massachusetts on behalf of investors who purchased shares in the company during the class period between Jan. 12, 2015 and Oct. 16, 2015, according to a press release. The class action filing claims that the biopharmaceutical firm misled investors about thrombotic adverse events – in layman’s terms, blood clots – in prior clinical trials of its anti-obesity treatment and leading drug candidate, beloranib. Up until Oct. 16 the company had only disclosed two thrombotic adverse events in a single previous clinical trial.

“The stock’s decline was fueled by rumors that a patient had died.”

Zafgen’s beloranib trials result in adverse rumors
The Zafgen website states that the company’s goal is to substantially improve the health of patients who are dealing with obesity or complex metabolic disorders. Beloranib is designed to assert balance in the ways that the body produces and uses fat stored in the adipose tissue. The firm writes that it is dedicated to helping enhance the lives of people who suffer from obesity, a population that it calls “underserved.”

Through most of the class period Zafgen stock traded in the middle and upper $30-range as the defendants touted the progress of the beloranib trials. However, by October stock in the company began to fall. Between Oct. 12 and 13 stock dropped significantly from $34.76 per share to $15.75 per share, a 55 percent tumble. This decline was fueled by rumors that a patient had died during an ongoing Phase 3 clinical trial of beloranib.

Death of a patient, other adverse events, cause share prices to plummet
Following the drop, on Oct. 14, Zafgen confirmed that a patient in the Phase 3 clinical trial had died. However, the biopharmaceutical firm failed to disclose that the individual had been receiving beloranib, rather than placebo. Nor did the company reveal anything to do with thrombotic events in previous trials.

The death of a patient taking belanorib during clinical trials caused share prices to tumble.The death of a patient taking beloranib during clinical trials caused share prices to tumble.

The next day, on Oct. 15, the Food and Drug Administration informed Zafgen that beloranib had been placed on on partial clinical hold. Following that, on Oct. 16, the biopharmaceutical firm revealed that the patient who died had been receiving beloranib. The company also revealed two more thrombotic events during previous trials in addition to the two it had already reported, as well as another two that had occurred during ongoing trials, bringing the total to six out of 400 patients receiving beloranib, compared with zero for the 150 individuals receiving a placebo.

A month prior to these revelations, Zafgen insiders unloaded more than $10 million in stock. And following the disclosures, share prices fell substantially. The firm’s stock closed at $21.02 per share on Oct. 15 and the following day, Oct. 16, the company finished the day at $10.36 per share, a drop of over 50 percent.

For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or info@battea.com.

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