Why Aurora Cannabis, Zafgen, and Overstock.com Slumped Today

Why Aurora Cannabis, Zafgen, and Overstock.com Slumped Today
FDA puts Zafgens diabetes trial on hold
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Monday saw a good session on Wall Street, as major benchmarks came back from the Thanksgiving holiday with gains of around 1.5% to 2%. Investors generally seemed pleased with the pace of economic activity during the most watched shopping period of the year in the U.S., and a host of beaten-down high-profile names recovered from their worst losses of the stock markets correction since late September. Yet not every company managed to see enough good news to support its share price. Aurora Cannabis (NYSE:ACB), Zafgen (NASDAQ:ZFGN), and Overstock.com (NASDAQ:OSTK) were among the worst performers on the day. Heres why they did so poorly.

Shares of Aurora Cannabis dropped 6% on a poor day for many key stocks in the cannabis sector. News from Canada suggests that producers like Aurora simply arent growing enough marijuana to meet the huge demand from the recent rollout of recreational pot, and deliveries to provincial retailers have thus far fallen well short of expectations. In its defense, Aurora has said that much of the blame lies with the provinces themselves, which havent worked as well in establishing retail cannabis sales as many had hoped. Regardless of the cause, however, marijuana investors are nervous that Aurora and its peers might not live up to the huge expectations the market has for their prospects.

The stock of biotech specialist Zafgen (NASDAQ:ZFGN) plunged more than 40% after the company announced that the U.S. Food and Drug Administration had forced it to stop testing its ZGN-1061 experimental treatment for type 2 diabetes. The clinical hold stemmed from safety concerns about another Zafgen drug called beloranib, which caused deaths in several study participants. The FDA wants Zafgen to show how it will deal with any similar issues with ZGN-1061, and the company responded by saying it expects to meet with the FDA to discuss further steps. Investors didnt like the potential delay that would cause in getting approval in the U.S., and theres no guarantee that Zafgen will be able to come up with a plan of action that will address all of the FDAs concerns.

Now, a supplementary explanation has emerged: The FDA has reservations about ZGN-1061. Zafgen sketched out the reservations in a statement that revealed the FDA placed a clinical hold on the IND for the planned U.S. trial of ZGN-1061. The FDA cited the possibility of cardiovascular safety risk based on beloranib, according to Zafgen.

Finally, Overstock.com shares fell 16%. The e-commerce company had jumped substantially after CEO Patrick Byrne announced that Overstock would sell off its retail operations and turn all of its attention to its opportunities related to blockchain technology. However, investors apparently had time to digest the implications of the strategic move further over the weekend. The fact that bitcoin and many other cryptocurrencies have lost 80% to 90% or more of their value since early 2018 shows just how much risks involved in the cryptocurrency-based business model that Overstock intends to adopt.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Two years after Zafgen torched its lead obesity compound following an ugly crash in late-stage testing that cost lives, the FDA is still fretting whether the company is continuing to expose more people to harm.

Zafgen has spent the past year putting that idea to the test in a phase 2 trial of ZGN-1061 in patients with Type 2 diabetes. Speaking in 2017, Zafgen framed its decision to run the trial in Australia as a consequence of having tested beloranib extensively in the country.

The biotech reported today that the FDA has slapped a clinical hold on their MetAP2 drug ZGN-1061, worried that the cardio threat posed by their first-gem drug beloranib might still be in play. They plan to follow up with a face-to-face meeting, but there’s no clarity on how long their drug could be in limbo now.

Investors hated the sound of it. Zafgen’s shares cratered, plunging 46% shortly after the market opened Monday.