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Zafgen (ZFGN) Securities Fraud Class Action Lawsuit

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This federal securities class action lawsuit is brought against Zafgen, Inc., a small pharmaceutical company researching and experimenting on the release of a single product—an anti-obesity drug called beloranib, and its CEO, Thomas E. Hughes.  The complaint alleges that defendants fraudulently withheld material information from investors: (1) heavy insider trading in September 2015 due to the thrombotic adverse effects of beloranib; (2) patient death in an ongoing Phase 3 beloranib study not made public by Zafgen’s management; (3) Zafgen only reported 2 cases of thrombotic events and concealed the existence of additional 4 adverse events in prior clinical studies.

Zafgen, Inc, is a biopharmaceutical company, which was founded in 2005 to explore new approaches to obesity therapeutics.  Zafgen’s valuation is closely tied to the value of a single drug – anti-obesity drug called beloranib. 

Who Is Affected?

This class action is brought on behalf of a class consisting of all investors who purchased Zafgen, Inc. common stock between January 12, 2015 and October 16, 2015, inclusive, seeking to recover damages and pursue remedies under the Securities Exchange Act of 1934.  Zafgen was incorporated in Delaware and has its principal place of business in Boston, Massachusetts.  Its shares trade on NASDAQ under the ticker symbol “ZFGN.” 

Procedural History

This class action was filed on October 21, 2015 and is captioned Aviad Bessler, et al. v. Zafgen, Inc. and Thomas E. Hughes.  It was filed in the Massachusetts District Court and its civil docket number is 1:15-cv-13618.  The class period runs from January 12, 2015 through October 16, 2015, inclusive.

In its most recent quarterly report, Zafgen stated beloranib was in the midst of Phase 3 clinical trial and awaiting FDA approval.  The class period begins to run when during a follow-up offering, Zafgen described six previously completed clinical trials of beloranib and disclosed that there were only two serious thrombotic adverse events in one of the Phase 2 trials of beloranib.  Throughout the entire class period, Zafgen had never disclosed any other thrombotic adverse events related to beloranib. 

In addition, in early October 2015, following heavy insider selling off Zafgen stock, which caused a 55% price drop, rumors of patient death in an ongoing Phase 3 beloranib study began circulating in the marketplace.  On October 14, Zafgen confirmed the patient death, but failed to disclose that the patient was in fact receiving beloranib, and not a placebo.

However, on October 15, 2015, when the Food and Drug Administration placed beloranib on partial clinical hold, Zafgen was forced to make corrective disclosures, including revealing that:

  1. the patient who died was in fact receiving beloranib; and 
  2. there had been four thrombotic adverse events in prior clinical studies of beloranib—two more than previously reported—as well as two additional, previously undisclosed thrombotic events in ongoing studies, for a total of six thrombotic events out of 400 patients receiving beloranib compared to zero thrombotic events in the approximately 150 patients treated with a placebo.

As a direct and immediate result of the corrective disclosure, Zafgen’s stock fell more than 50% the very same day.

Current Case Status: 

This case is in the notice period.  When a shareholder brings suit under certain federal securities laws, generally that shareholder must give notice via a press release.  This notice starts a sixty-day period of time when any shareholder can investigate the underlying claims of the lawsuit and then elect to bring suit as well.  At the end of this sixty-day period, the court appoints one shareholder (or a group of shareholders) to prosecute the securities litigation.  We will review the docket again in December and update this page as warranted.

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