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CLASS ACTION COMPLAINT

UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS

PLAINTIFF, Individually and on Behalf ofAll Others Similarly Situated,

Plaintiff,

v.

ZAFGEN, INC., THOMAS E. HUGHES,PATRICIA L. ALLEN, PETERBARRETT, BRUCE BOOTH, AVIGOLDBERG, JOHN L. LAMATTINA,KEVIN P. STARR, LEERINK PARTNERSLLC, COWEN AND COMPANY, LLC,CANACCORD GENUITY INC., and JMPSECURITIES LLC,

Defendants.

Case No.

CLASS ACTION COMPLAINT FORVIOLATIONS OF THE FEDERALSECURITIES LAWS

JURY TRIAL DEMANDED

CLASS ACTION COMPLAINT1

Plaintiff _________ (“Plaintiff”), by and through his attorneys, alleges the following

upon information and belief, except as to those allegations concerning Plaintiff, which are

alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other

things, his counsel’s investigation, which includes without limitation: (a) review and analysis of

regulatory filings made by Zafgen, Inc. (“Zafgen” or the “Company”), with the United States

Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and

media reports issued by and disseminated by Zafgen; and (c) review of other publicly available

information concerning Zafgen.

NATURE OF THE ACTION AND OVERVIEW

1. This is a class action on behalf of persons or entities who purchased or otherwise

acquired Zafgen securities: (1) pursuant and/or traceable to the Company’s Registration

Statement and Prospectus (collectively, the “Registration Statement”) issued in connection with

the Company’s initial public offering on or about June 18, 2014 (the “IPO” or the “Offering”);

and/or (2) between June 18, 2014 and October 15, 2015, inclusive (the “Class Period”). Plaintiff

seeks to pursue remedies under the Securities Act of 1933 (the “Securities Act”) and under the

Securities Exchange Act of 1934 (the “Exchange Act”).

2. Zafgen is a biopharmaceutical company. The Company’s lead product candidate,

is a novel, twice-weekly subcutaneous injection being developed for the treatment of multiple

indications, including severe obesity in two rare diseases, Prader-Willi syndrome, and

hypothalamic injury-associated obesity including craniopharyngioma-associated obesity; and

severe obesity in the general population.


3. On June 18, 2014, Zafgen priced its IPO of 6,000,000 shares of common stock, at

a price of $16.00 per share, exclusive of the underwriters’ exercise of their over-allotment option

to purchase 900,000 additional shares.

4. On Monday, October 12, 2015, Zafgen canceled a roadshow set for the next day

with RBC Capital. The Company also canceled an investor dinner set for Wednesday, October

14, 2015.

5. On this news, shares of Zafgen declined $18.65 per share, or 54%, over two

trading periods to close at $15.75 per share on October 13, 2015, on unusually heavy trading

volume.

6. On October 14, 2015, the Company disclosed that “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.”

7. Subsequently, on October 16, 2015, the Company issued a press release

disclosing that “beloranib has been placed on partial clinical hold” by the the U.S. Food and

Drug Administration (“FDA”) to “institute measures to ensure patient safety.” The Company

also disclosed that, “while the cause of death remains unknown, the patient’s treatment

assignment has been unblinded and it is now known that the patient was receiving beloranib.”

The Company also disclosed that it expects to report top-line results from the trial in the first

quarter of 2016.

8. On this news, shares of Zafgen declined $10.36 per share, or 50%, to close at

$10.36 per share on October 16, 2015, on unusually heavy trading volume.

9. Throughout the Class Period, Defendants made false and/or misleading

statements, as well as failed to disclose material adverse facts about the Company’s business,


operations, and prospects. Specifically, Defendants made false and/or misleading statements

and/or failed to disclose: (1) that beloranib posed significant health risks to patients including,

death; (2) that, as such, death or other adverse effects were likely to occur during clinical trials

involving beloranib; (3) that, as a result, applications for approval of treatments involving

beloranib were likely to fail FDA scrutiny and/or be delayed; (4) and that, as a result of the

foregoing, the Defendants’ statements about Zafgen’s business, operations, and prospects, were

materially false and misleading and/or lacked a reasonable basis.

10. As a result of Defendants’ wrongful acts and omissions, and the precipitous

decline in the market value of the Company’s securities, Plaintiff and other Class members have

suffered significant losses and damages.

JURISDICTION AND VENUE

11. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the

Securities Act (15 U.S.C. §§ 77k and 77o), and Sections 10(b) and 20(a) of the Exchange Act

(15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R.

§ 240.10b-5).

12. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. § 1331, Section 22 of the Securities Act (15 U.S.C. § 77v), and Section 27 of the

Exchange Act (15 U.S.C. §78aa).

13. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and

Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). A significant portion of Defendants’

actions, and the subsequent damages, took place in this Judicial District. Additionally, Zafgen’s

principal executive offices are located within this Judicial District.


14. In connection with the acts, transactions, and conduct alleged herein, Defendants

directly and indirectly used the means and instrumentalities of interstate commerce, including the

United States mail, interstate telephone communications, and the facilities of a national securities

exchange.

PARTIES

15. Plaintiff _________, as set forth in the accompanying certification, incorporated

by reference herein, purchased Zafgen shares during the Class Period, pursuant and/or traceable

to the Registration Statement issued in connection with the Company’s IPO, and suffered

damages as a result of the federal securities law violations and false and/or misleading statements

and/or material omissions alleged herein.

16. Defendant Zafgen is a Delaware corporation with its principal executive offices

located at 175 Portland Street Boston, MA.

17. Defendant Thomas E. Hughes (“Hughes”) was, at all relevant times, Chief

Executive Officer (“CEO”) and a director of Zafgen. Hughes also signed the Company’s

Registration Statement as CEO and a director.

18. Defendant Patricia L. Allen (“Allen”) was, at all relevant times, Chief Financial

Officer (“CFO”) of Zafgen. Allen also signed the Company’s Registration Statement as CFO.

19. Defendant Peter Barrett (“Barrett”) was a director and Chairman of the Board of

Zafgen and signed or authorized the signing of the Company’s Registration Statement filed with

the SEC.

20. Defendant Bruce Booth (“Booth”) was a director of Zafgen and signed or

authorized the signing of the Company’s Registration Statement filed with the SEC.


21. Defendant Avi Goldberg (“Goldberg”) was a director of Zafgen and signed or


22. Defendant John L. Lamattina (“Lamattina”) was a director of Zafgen and signed

or authorized the signing of the Company’s Registration Statement filed with the SEC.

23. Defendant Kevin P. Starr (“Starr”) was a director of Zafgen and signed or


24. Defendants Hughes and Allen are collectively referred to hereinafter as the

“Individual Defendants.” The Individual Defendants, because of their positions with the

Company, possessed the power and authority to control the contents of Zafgen’s reports to the

SEC, press releases and presentations to securities analysts, money and portfolio managers and

institutional investors, i.e., the market. Each defendant was provided with copies of the

Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,

their issuance and had the ability and opportunity to prevent their issuance or cause them to be

corrected. Because of their positions and access to material non-public information available to

them, each of these defendants knew that the adverse facts specified herein had not been

disclosed to, and were being concealed from, the public, and that the positive representations

which were being made were then materially false and/or misleading. The Individual

Defendants are liable for the false statements pleaded herein, as those statements were each

“group-published” information, the result of the collective actions of the Individual Defendants.

25. Defendants Hughes, Allen, Barrett, Booth, Goldberg, Lamattina, and Starr are

collectively referred to hereinafter as the “Section 11 Individual Defendants.”


26. Defendant Leerink Partners LLC (“Leerink Partners”) served as an underwriter

and joint book-running manager of the Company’s IPO. In the Offering, Leerink Partners agreed

to purchase 2,250,000 shares of the Company, exclusive of the over-allotment option.

27. Defendant Cowen and Company, LLC (“Cowen”) served as an underwriter and

joint book-running manager of the Company’s IPO. In the Offering, Cowen agreed to purchase

1,950,000 shares of the Company, exclusive of the over-allotment option.

28. Defendant Canaccord Genuity Inc. (“Canaccord”) served as an underwriter of the

Company’s IPO. In the Offering, Canaccord agreed to purchase 900,000 shares of the Company,

exclusive of the over-allotment option.

29. Defendant JMP Securities LLC (“JMP”) served as an underwriter of the

Company’s IPO. In the Offering, JMP agreed to purchase 900,000 shares of the Company,

exclusive of the over-allotment option.

30. Defendants Leerink Partners, Cowen, Canaccord, and JMP are collectively

referred to hereinafter as the “Underwriter Defendants.”

31. The Company, the Section 11 Individual Defendants, and the Underwriter

Defendants, are collectively referred to hereinafter as the “Section 11 Defendants.”

SUBSTANTIVE ALLEGATIONS

Background

32. Zafgen is a biopharmaceutical company. The Company’s lead product candidate,

is a novel, twice-weekly subcutaneous injection being developed for the treatment of multiple

indications, including severe obesity in two rare diseases, Prader-Willi syndrome, and

hypothalamic injury-associated obesity including craniopharyngioma-associated obesity; and

severe obesity in the general population.


33. On June 18, 2014, the SEC declared effective the Form S-1 that Zafgen filed on

April 18, 2014 and repeatedly amended, until on or about June 16, 2014, when the Company

filed with the SEC the final Form S-1/A (collectively, the “Registration Statement”) for the IPO.

34. On June 18, 2014, Zafgen priced its IPO of 6,000,000 shares of common stock, at

a price of $16.00 per share, exclusive of the underwriters’ exercise of their over-allotment option

to purchase 900,000 additional shares. According to the Company, the Offering raised

$102,672,000 for the Company, net of underwriting discounts, commissions and offering

expenses.

Materially False and MisleadingStatements Issued During the Class Period

35. The Class Period begins on June 18, 2014. On or about this day, the Company

filed with the SEC its IPO Prospectus (the “Prospectus”), which forms part of the Registration

Statement. Under applicable SEC rules and regulations, the Registration Statement was required

to disclose known trends, events or uncertainties that were having, and were reasonably likely to

have, an impact on the Company’s continuing operations.

36. With respect to side effects of the Company’s products, the Registration

Statement, in relevant part, stated:

Our product candidates may cause undesirable side effects that could delay orprevent their regulatory approval, limit the commercial profile of an approvedlabel, or result in significant negative consequences following marketingapproval, if any.

Undesirable side effects caused by our product candidates could cause us orregulatory authorities to interrupt, delay or halt clinical trials and could result in amore restrictive label or the delay or denial of regulatory approval by the FDA orother regulatory authorities. In our recently completed Phase 2a clinical trialsevaluating beloranib’s ability to reduce body weight and to improve hyperphagia,the main adverse events, or AEs, including those leading to drop-outs, in patientsdosed with beloranib, have been sleep disturbances, principally manifested asdelayed onset of sleep, nausea and vomiting.


The safety data we have disclosed to date represents our interpretation of the dataat the time of disclosure and it is subject to our further review and analysis. Therehave been no serious adverse events, or SAEs, attributed to beloranib in ourclinical trials. However, SAEs that are not characterized by clinical investigatorsas possibly related to beloranib or SAEs that occur in small numbers may not bedisclosed to the public until such time the various documents submitted to theFDA as part of the approval process are made public. We are unable to determineif the subsequent disclosure of SAEs will have an adverse effect on our stockprice. In addition, our interpretation of the safety data from our clinical trials iscontingent upon the review and ultimate approval of the FDA. The FDA may notagree with our methods of analysis or our interpretation of the results.

Further, if beloranib receives marketing approval and we or others identifyundesirable side effects caused by the product (or any other similar product) afterthe approval, a number of potentially significant negative consequences couldresult, including:

regulatory authorities may withdraw or limit their approval of the product; regulatory authorities may require the addition of labeling statements, such

as a “boxed” warning or a contraindication; we may be required to change the way the product is distributed or

administered, conduct additional clinical trials or change the labeling ofthe product;

we may decide to remove the products from the marketplace; we could be sued and held liable for injury caused to individuals exposed

to or taking our product candidates; and our reputation may suffer.

Any of these events could prevent us from achieving or maintaining marketacceptance of the affected product candidate and could substantially increase thecosts of commercializing our product candidates and significantly impact ourability to successfully commercialize our product candidates and generaterevenues.

37. With respect to adverse events during clinical trials involving beloranib, the

Registration Statement, in relevant part, stated:

Across all our clinical trials, beloranib has been well-tolerated at doses we wouldexpect to explore in the future. There have been no serious adverse events, orSAEs, attributed to beloranib in our clinical trials. The main adverse events, orAEs, including those leading to drop-outs, in patients dosed with beloranib havebeen sleep disturbances, principally manifested as delayed onset of sleep, nauseaand vomiting. For certain of our clinical trials, we performed statistical analysis ofour results and report the p-value, which is a statistical calculation that relates to


the probability that a difference between groups happened by chance, with a p-value of less than 0.05 (i.e., less than 5% probability that the difference happenedby chance) generally being used as the threshold to indicate statisticalsignificance. We expect that the FDA will perform its own independent statisticalanalyses to determine if our data support regulatory approval. Each of our clinicaltrials is discussed in more detail below.

38. On August 13, 2014, Zafgen issued a press release entitled, “Zafgen Reports

Second Quarter 2014 Financial Results.” Therein, the Company, in relevant part, stated:

BOSTON, Mass., August 13, 2014 – Zafgen, Inc. (Nasdaq: ZFGN), abiopharmaceutical company dedicated to significantly improving the health andwell-being of patients affected by obesity, today announced its second quarter2014 financial results.

Recent Business Highlights

Completed an underwritten initial public offering (IPO) of 6.9 millionshares of common stock, including the underwriters’ exercise in full oftheir over-allotment option of 900,000 shares, providing net proceeds ofapproximately $102.7 million.

Received orphan designation in Prader-Willi syndrome (PWS) for leadproduct candidate, beloranib, in the European Union (EU).

Initiated the ZAF-221 Phase 2a clinical trial in patients with obesityassociated with hypothalamic injury, including craniopharyngioma-associated obesity, in June 2014.

Expanded the leadership team through the appointment of Patrick Loustauto President and the addition of Frank Thomas to the Board of Directorsand Chairman of the Audit Committee.

“The second quarter was an exciting time for Zafgen as we completed our IPO,strengthened our team, and further advanced our lead product candidate,beloranib,” said Dr. Thomas Hughes, Chief Executive Officer of Zafgen. “As weclose this quarter, we are now well-capitalized and looking forward to theremainder of 2014, as well as 2015, during which time we anticipate additionalefficacy and safety data from three key clinical trials for beloranib, including aPhase 2a trial in obesity associated with hypothalamic injury, the first Phase 3controlled trial in Prader-Willi syndrome in the United States, and a Phase 2b trialin severe obesity in the general population.”“We are very pleased with our accomplishments thus far in 2014 and are excitedby the data rich year ahead in 2015, including planned results of our first Phase 3trial with beloranib. We remain committed to bringing life-changing treatmentoptions to patients affected by obesity and obesity-related disorders,” concludedDr. Hughes.


Discussion of Second Quarter 2014 Financial Results

Cash and Cash Equivalents

As of June 30, 2014, the Company had cash and cash equivalents totaling $134.2million, which includes net proceeds of $102.7 million from the IPO.

Net Loss

The Company reported a net loss for the three months ended June 30, 2014 of$6.4 million, or $2.96 per share, compared to a $3.1 million net loss, or $4.37 pershare, for the three months ended June 30, 2013. The weighted average commonshares (basic and diluted) outstanding used to compute net loss per share were2,178,465 for the three months ended June 30, 2014, compared to 729,391 for thethree months ended June 30, 2013. The Company had 22,707,012 shares ofcommon stock outstanding as of June 30, 2014.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2014increased to $4.7 million, compared to $2.0 million in the three months endedJune 30, 2013. The increase was primarily due to increased costs of $2.0 millionassociated with the Company’s beloranib program, $0.3 million associated withZGN-839 and other early-stage development programs (consisting of its second-generation MetAP2 inhibitors), $0.3 million associated with personnel relatedcosts, and $0.2 million in consultant related costs.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2014increased to $1.3 million, compared to $1.0 million in the three months endedJune 30, 2013, primarily due to increased personnel related costs of $0.3 millionand increased travel and other related costs of $0.1 million period over period,partially offset by a decrease in professional fees of $0.1 million period overperiod.

2014 Financial Guidance

The Company expects to end 2014 with greater than $95 million in cash and cashequivalents.

“Zafgen is pleased to have completed its IPO in June 2014 and with the $102.7million in net proceeds from the offering expects to end 2014 with greater than$95 million in cash and cash equivalents,” said Patricia Allen, Chief FinancialOfficer of Zafgen. “We believe this financial position enables us to build our


business, including executing on the three clinical trials we will be conducting in2014 and 2015.”

39. On August 14, 2014, Zafgen filed its Quarterly Report with the SEC on Form 10-

Q for the quarterly period ended June 30, 2014. The Company’s 10-Q was signed by Defendants

Hughes and Allen and reaffirmed the Company’s financial results previously announced on

August 13, 2014.

40. On November 11, 2014, Zafgen issued a press release entitled, “Zafgen Reports

Third Quarter 2014 Financial Results.” Therein, the Company, in relevant part, stated:

BOSTON, Mass., November 11, 2014 – Zafgen, Inc. (Nasdaq: ZFGN), abiopharmaceutical company dedicated to significantly improving the health andwell-being of patients affected by obesity and complex metabolic disorders, todayannounced its third quarter 2014 financial results.

Recent Business Highlights

Initiated and began dosing in the bestPWS (Beloranib Efficacy Safety andTolerability in PWS) Phase 3 clinical trial in patients with Prader-Willisyndrome (PWS) in September.

Completed enrollment in the ZAF-221 Phase 2a clinical trial in patientswith hypothalamic injury-associated obesity (HIAO), includingcraniopharyngioma-associated obesity, in September.

Multiple presentations at ObesityWeek 2014, including a posterpresentation of the ZAF-211 Phase 2a clinical trial results in patients withPWS.

Strengthened the Board of Directors through the return of pharmaceuticalindustry business development veteran, Frances K. Heller, as a director.

“This has been a productive quarter for Zafgen, particularly with the progress wehave made recently in advancing beloranib in the clinic in multiple indications,”said Dr. Thomas Hughes, Chief Executive Officer of Zafgen.“We continue to be well-capitalized as we move ahead with our mission ofbringing life-changing treatment options to patients affected by obesity andobesity-related disorders. We look forward to reporting key data in 2015 from ourthree beloranib clinical trials; our Phase 2a proof of concept study (ZAF-221) inpatients with hypothalamic injury-associated obesity (HIAO), our bestPWS(ZAF-311) Phase 3 study in Prader-Willi syndrome, and our Phase 2b study(ZAF-203) in patients with severe obesity and type 2 diabetes,” said Dr. Hughes.

Discussion of Third Quarter 2014 Financial Results


Cash and Cash Equivalents

As of September 30, 2014, the Company had cash and cash equivalents totaling$127.0 million.Net LossThe Company reported a net loss for the three months ended September 30, 2014of $14.7 million, or $0.65 per share, compared to a $3.5 million net loss, or $4.88per share, for the three months ended September 30, 2013. The weighted averagecommon shares (basic and diluted) outstanding used to compute net loss per sharewere 22,707,012 for the three months ended September 30, 2014, compared to729,391 for the three months ended September 30, 2013.


Research and development expenses for the three months ended September 30,2014 increased to $12.1 million, compared to $2.4 million in the three monthsended September 30, 2013. The increase was primarily due to increased costs of$2.1 million associated with the advancement of the Company’s beloranibprogram, and $6.7 million in expenses related to milestone payments, primarily toChong Kun Dang Pharmaceutical Corporation (CKD Pharma), triggered by theinitiation of the bestPWS Phase 3 clinical trial.


General and administrative expenses for the three months ended September 30,2014 increased to $2.3 million, compared to $1.1 million in the three monthsended September 30, 2013, primarily due to increased personnel related costs of$0.7 million and increased public company, professional fees, travel and otherrelated costs of $0.5 million period over period.


As a result of increased clarity related to the timing of certain pre-clinical andclinical expenses, the Company now expects to end 2014 with greater than $100million in cash and cash equivalents, as compared to the previous estimate ofgreater than $95 million.

“We are pleased to increase our cash guidance at the end of calendar year 2014 togreater than $100 million from $95 million in cash and cash equivalents,” saidPatricia Allen, Chief Financial Officer of Zafgen. “We believe this financialposition enables us to continue to grow our business, including executing on andobtaining clinical data from three clinical trials we will be conducting in 2014 and2015.”


41. On November 13, 2014, Zafgen filed its Quarterly Report with the SEC on Form

10-Q for the quarterly period ended September 30, 2014. The Company’s Form 10-Q was

signed by Defendants Hughes and Allen, and reaffirmed the Company’s financial results

previously announced on November 11, 2014.

42. On March 19, 2015, Zafgen issued a press release entitled, “Zafgen Reports

Fourth Quarter and Full Year 2014 Financial Results.” Therein, the Company, in relevant part,

stated:

BOSTON, Mass., March 19, 2015 – Zafgen, Inc. (Nasdaq: ZFGN), abiopharmaceutical company dedicated to significantly improving the health andwell-being of patients affected by obesity and complex metabolic disorders, todayannounced its fourth quarter and full year 2014 financial results.

Zafgen 2014 and Early 2015 Business Highlights

Initiated a first Phase 3 trial through the bestPWS (Beloranib EfficacySafety and Tolerability in PWS) clinical trial in patients with a rare geneticdisorder, Prader-Willi syndrome (PWS), which began randomizedtreatment in September 2014

Initiated a Phase 2b clinical trial (ZAF-203) to establish the long-termweight loss benefits of MetAP2 inhibitor treatment with beloranib inpatients with severe obesity complicated by type 2 diabetes, which beganrandomized treatment in December 2014

Announced positive results from a Phase 2a clinical trial of beloranib inpatients with hypothalamic injury-associated obesity (HIAO), a rarecondition that is also a difficult-to-treat severe form of obesity, in January2015

Two U.S. patents owned by Zafgen have issued during 2014 and 2015 thatrelate to methods of treating obesity using dosing regimens of beloranib,and one U.S. patent issued in 2014 that relates to compositions ofbeloranib

Added to the NASDAQ Biotechnology Index (Nasdaq:NBI) in December2014

Raised approximately $230 million through a successful initial publicoffering (IPO) in June 2014 and a follow-on public offering in January2015


“We are very pleased with our accomplishments for the fourth quarter of 2014and moreover, the year as a whole, which has been one of the most productive inour Company’s history. We have made substantial progress in the clinicaldevelopment of beloranib in multiple indications, all in continued support of ourmission of bringing life-changing treatment options to patients affected by obesityand obesity-related disorders,” said Dr. Thomas Hughes, Chief Executive Officerof Zafgen.

“With promising data in hand from our recent Phase 2a proof of concept trial(ZAF-221) in patients with HIAO, we look forward to readouts from ourbestPWS (ZAF-311) Phase 3 study in Prader-Willi syndrome, and our Phase 2btrial (ZAF-203) in patients with severe obesity complicated by type 2 diabetes,”said Dr. Hughes.

“We were pleased to have completed our IPO in June 2014 and our recent follow-on offering in January 2015 bringing in total net proceeds of approximately $230million,” said Patricia Allen, Chief Financial Officer of Zafgen. “We are investingthis capital in the development of beloranib in multiple indications along withbringing forth our ZAF-839 program in nonalcoholic steatohepatitis, or NASH,and second-generation molecules to beloranib. We are also expanding ourorganization to deliver on our multiple development programs and create thefoundation of our commercialization activities in anticipation of approval ofbeloranib in Prader-Willi syndrome.”

Fourth Quarter and Full Year 2014 Financial Results

Cash and Cash Equivalents and Marketable Securities

As of December 31, 2014, the Company had cash and cash equivalents andmarketable securities totaling $115.5 million.

In January 2015, the Company sold an aggregate of 3,942,200 shares of commonstock through an underwritten public offering at $35.00 per share, beforeunderwriting discounts, which included the full-exercise of the underwriters’option to purchase an additional 514,200 shares of common stock at $35.00 pershare. The net proceeds to the Company were approximately $129.5 million.

Net Loss

The Company reported a net loss for the fourth quarter of 2014 of $10.9 million,or $0.48 per share, compared to a $3.8 million net loss, or $5.35 per share, for thefourth quarter of 2013. The Company reported a net loss for the year endedDecember 31, 2014 of $36.5 million, or $3.00 per share, compared to a $14.0million net loss, or $19.53 per share, for the full year ended December 31, 2013.The weighted average common shares (basic and diluted) outstanding used tocompute net loss per share were 22,783,817 for the fourth quarter of 2014,


compared to 729,391 for the fourth quarter of 2013. The weighted averagecommon shares (basic and diluted) outstanding used to compute net loss per sharewere 12,189,155 for the year ended December 31, 2014, compared to 729,001 forthe year ended December 31, 2013.


Research and development expenses for the fourth quarter of 2014 were $7.3million, compared to $2.5 million for the fourth quarter of 2013. Research anddevelopment expenses for the year ended December 31, 2014 were $27.4 million,compared to $9.6 million for the year ended December 31, 2013. The increase inresearch and development expenses for the quarter and year ended

December 31, 2014 as compared to prior year periods was primarily due toincreased costs associated with the advancement of the Company’s beloranibprogram, ZGN-839 and other early stage development programs (consisting ofour second-generation MetAP2 inhibitors). In addition, the increase for the yearended December 31, 2014 as compared to the prior year was a result of $7.0million in expenses related to milestone payments, primarily to Chong Kun DangPharmaceutical Corporation (CKD Pharma), triggered by the initiation of thebestPWS Phase 3 clinical trial which the Company initiated in September 2014.


General and administrative expenses for the fourth quarter of 2014 were $3.3million, compared to $1.2 million for the fourth quarter of 2013. General andadministrative expenses for the year ended December 31, 2014 were $8.1 million,compared to $4.2 million for the year ended December 31, 2013. The increase ingeneral and administrative expenses for the quarter and year ended December 31,2014 as compared to prior year periods was primarily due to increased personnelrelated costs, increased travel and other related costs, and increased professionalfees.


The Company expects that its cash and cash equivalents and marketable securitiesbalance will be greater than $145.0 million at December 31, 2015.

43. On March 24, 2015, Zafgen filed its Annual Report with the SEC on Form 10-K

for the fiscal year ended December 31, 2014. The Company’s Form 10-K was signed by

Defendants Hughes and Allen, and reaffirmed the Company’s financial results previously

announced on March 19, 2015.


44. On May 12, 2015, Zafgen issued a press release entitled, “Zafgen Reports First

Quarter 2015 Financial Results.” Therein, the Company, in relevant part, stated:

BOSTON, Mass., May 12, 2015 – Zafgen, Inc. (Nasdaq: ZFGN), abiopharmaceutical company dedicated to significantly improving the health andwell-being of patients affected by obesity and complex metabolic disorders, todayannounced its first quarter 2015 financial results.

Zafgen Q1 2015 Business Highlights

Announced an accelerated rate of patient enrollment in recent months inthe bestPWS (Beloranib Efficacy Safety and Tolerability in PWS) clinicaltrial in patients with a rare genetic disorder, Prader-Willi syndrome (PWS)and has reached the original patient recruitment target of 102 patients.Enrollment closeout is expected to be completed in the near term and thetotal patients in the trial will slightly exceed the original 102 patient goal.Release of top line results is now expected to occur early in the firstquarter of 2016.

Based on constructive ongoing dialogue with the U.S. Food and DrugAdministration (FDA), the Company has finalized its plan regarding thestatistical analysis of primary efficacy endpoints for the bestPWS clinicaltrial. Both hyperphagia-related behaviors and body weight will be co-primary efficacy endpoints and will be evaluated at a significance level ofp-value less than 0.05. With 102 patients enrolled, the trial is adequatelypowered to demonstrate these effects of beloranib.

Enrolled approximately two-thirds of a target 150 patients in the Phase 2bclinical trial (ZAF-203) to establish the long-term weight loss benefits ofMetAP2 inhibitor treatment with beloranib in patients with severe obesitycomplicated by type 2 diabetes, which began randomized treatment inDecember 2014. The Company remains on track to release six-monthinterim data in this subset of patients in late 2015 or very early 2016.

In January 2015, announced positive results from a Phase 2 clinical trialof beloranib in patients with hypothalamic injury-associated obesity(HIAO), a rare, severe, and difficult-to-treat form of obesity. TheCompany also announced new weight loss and safety data from this Phase2 clinical trial of beloranib in HIAO at the Endocrine Society AnnualMeeting (ENDO 2015). Results from this trial showed that after fourweeks of treatment, patients randomized to beloranib lost on average 3.40kg of body weight vs. 0.25 kg on average for patients randomized toplacebo (p=0.01). Results from the open-label extension phase of the trialsuggested no apparent waning of the effect of beloranib over eight weeksof treatment.

Raised approximately $130 million through a follow-on public offering inJanuary 2015 which included the full-exercise of the underwriters’ optionto purchase additional shares of common stock.


“We are very pleased with our accomplishments for the first quarter of 2015. Weare thrilled to have seen a high rate of enrollment at our most recently-openedbestPWS clinical trial sites, which will enable us to release six month data fromour first pivotal Phase 3 clinical trial early in the first quarter of 2016,” saidDr. Thomas Hughes, Chief Executive Officer of Zafgen. “We are grateful to thepatients and their families for their enthusiasm and commitment to making thebestPWS trial possible.”

“With enrollment progressing well in our Phase 2b trial (ZAF-203) in patientswith severe obesity complicated by type 2 diabetes, we remain on track to releaseimportant six month interim data in late 2015 or very early 2016,” said Dr. DennisKim, Chief Medical Officer of Zafgen. “The ZAF-203 trial will provide our firstlook at the effects of beloranib treatment on both body weight and glycemiccontrol in the setting of type 2 diabetes, an important and difficult to treat co-morbidity of obesity.”

“We were pleased to have completed our recent follow-on offering in January2015, bringing in total net proceeds of approximately $130 million and ending thecurrent quarter with a total cash position of approximately $234 million,” saidPatricia Allen, Chief Financial Officer of Zafgen. “This is an incrediblyproductive and exciting time for Zafgen and we are investing this capital in thedevelopment of beloranib in multiple indications, along with advancing our ZAF-839 program in nonalcoholic steatohepatitis, or NASH, and our second-generationmolecules in obesity. We are also expanding our organization to deliver on ourmultiple development programs and establish our commercial operations inanticipation of approval of beloranib in Prader-Willi syndrome.”

First Quarter 2015 Financial Results


As of March 31, 2015, the Company had cash and cash equivalents andmarketable securities totaling $234.2 million.

In January 2015, the Company sold an aggregate of 3,942,200 shares of commonstock through an underwritten public offering at $35.00 per share, beforeunderwriting discounts, which included the full-exercise of the underwriters’option to purchase an additional 514,200 shares of common stock at $35.00 pershare. The net proceeds to the Company were approximately $129.6 million.

Net Loss

The Company reported a net loss for the first quarter of 2015 of $13.5 million, or$0.53 per share, compared to a $4.5 million net loss, or $6.18 per share, for thefirst quarter of 2014. The weighted average common shares (basic and diluted)


outstanding used to compute net loss per share were 25,615,282 for the firstquarter of 2015, compared to 729,391 for the first quarter of 2014.


Research and development expenses for the first quarter of 2015 were $10.2million, compared to $3.3 million for the first quarter of 2014. The increase inresearch and development expenses for the quarter ended March 31, 2015 ascompared to the first quarter of 2014 was primarily due to increased costsassociated with the advancement of the Company’s beloranib program, ZGN-839and other early stage development programs (consisting of our second-generationMetAP2 inhibitors).


General and administrative expenses for the first quarter of 2015 were $3.0million, compared to $1.2 million for the first quarter of 2014. The increase ingeneral and administrative expenses for the quarter ended March 31, 2015 ascompared to the first quarter of 2014 was primarily due to increased personnelrelated costs, increased public company costs, increased travel and other relatedcosts, and increased professional fees.


The Company continues to expect that its cash and cash equivalents andmarketable securities balance will be greater than $145.0 million at December 31,2015.

45. On May 14, 2015, Zafgen filed its Quarterly Report with the SEC on Form 10-Q

for the quarterly period ended March 31, 2015. The Company’s Form 10-Q was signed by


announced on May 12, 2015.

46. On August 11, 2015, Zafgen issued a press release entitled, “Zafgen Reports

Second Quarter 2015 Financial Results.” Therein, the Company, in relevant part, stated:

BOSTON, Mass., August 11, 2015 – Zafgen, Inc. (Nasdaq: ZFGN), abiopharmaceutical company dedicated to significantly improving the health andwell-being of patients affected by obesity and complex metabolic disorders, todayannounced its second quarter 2015 financial results.

Zafgen Q2 2015 Business Highlights


Announced completion of enrollment in the bestPWS (Beloranib Efficacy,Safety and Tolerability in Prader-Willi syndrome) Phase 3 clinical trial inpatients with a rare genetic disorder, Prader-Willi syndrome (PWS) andhas exceeded the original patient recruitment target of 102 patients, havingenrolled 108 PWS patients in the trial across 15 sites in the United States.The objective of the study is to evaluate the efficacy and safety ofbeloranib in PWS patients over six months of randomized treatment,followed by a six-month open label extension. Release of six-monthrandomized top-line results is expected to occur early in the first quarter of2016.

The Company has enrolled greater than 95% of its enrollment target of150 patients in the Phase 2b clinical trial (ZAF-203) to establish the long-term weight loss benefits of MetAP2 inhibitor treatment with beloranib inpatients with severe obesity complicated by type 2 diabetes. The Companybegan randomized treatment in December 2014 and expects to completeenrollment in August 2015. The Company remains on track to release six-month interim data in a subset of 95 patients in late 2015 or very early2016.

“We are very pleased with our accomplishments for the second quarter of 2015.We are executing very well on two important clinical trials, the bestPWS Phase 3clinical trial in PWS and the ZAF-203 Phase 2b clinical trial in patients withsevere obesity complicated by type 2 diabetes,” said Dr.

Thomas Hughes, Chief Executive Officer of Zafgen. “We are also growing ourcompany and continuing to attract very high caliber employees as we headtowards commercialization.”

“With enrollment completed in our bestPWS Phase 3 trial this past quarter andenrollment now greater than 95% in our Phase 2b trial (ZAF-203) in patients withsevere obesity complicated by type 2 diabetes, we remain on track to release datain late 2015 or very early 2016 for both of these clinical trials,” said Dr. DennisKim, Chief Medical Officer of Zafgen. “The bestPWS trial is the first Phase 3trial conducted for a potential treatment of hyperphagia and weight loss in thishard to treat patient population. We are also extremely excited to see the six-month interim data from the ZAF-203 clinical trial which will provide our firstlook at the effects of beloranib treatment on both body weight and glycemiccontrol chronically in the setting of type 2 diabetes, an important and vexing co-morbidity of obesity.”

“We are pleased to have a strong cash position that is enabling us to meet our2015 goals, ending the current quarter with a total cash position of approximately$220 million,” said Patricia Allen, Chief Financial Officer of Zafgen. “This is anincredibly productive and exciting time for Zafgen and we are investing thiscapital in the development of beloranib in multiple indications, along with


advancing our ZGN-839 program in nonalcoholic steatohepatitis, or NASH, andour second-generation MetAP2 inhibitors for obesity. We are also expanding ourorganization to deliver on our multiple development programs and establish ourcommercial operations in anticipation of approval of beloranib in PWS.”Second Quarter 2015 Financial Results


As of June 30, 2015, the Company had cash and cash equivalents and marketablesecurities totaling $220.1 million.

Net Loss

The Company reported a net loss for the second quarter of 2015 of $17.8 million,or $0.66 per share, compared to a $6.4 million net loss, or $2.96 per share, for thesecond quarter of 2014, which was the quarter that the Company completed itsinitial public offering. The weighted average common shares (basic and diluted)outstanding used to compute net loss per share were 27,011,960 for the secondquarter of 2015, compared to 2,178,465 for the second quarter of 2014.


Research and development expenses for the second quarter of 2015 were $12.5million, compared to $4.7 million for the second quarter of 2014. The increase inresearch and development expenses for the quarter ended June 30, 2015 ascompared to the second quarter of 2014 was primarily due to increased costsassociated with the advancement of the Company’s beloranib program, ZGN-839and our second-generation MetAP2 inhibitors, as well as personnel related costs.


General and administrative expenses for the second quarter of 2015 were $5.1million, compared to $1.3 million for the second quarter of 2014. The increase ingeneral and administrative expenses for the quarter ended June 30, 2015 ascompared to the second quarter of 2014 was primarily due to increased personnelrelated costs, increased public company costs, increased travel and other relatedcosts, and increased professional fees, primarily commercial-readiness activitiesrelated to PWS.


The Company continues to expect that its cash and cash equivalents andmarketable securities balance will be greater than $145.0 million at December 31,2015.


47. On August 14, 2015, Zafgen filed its Quarterly Report with the SEC on Form 10-

Q for the quarterly period ended June 30, 2015. The Company’s Form 10-Q was signed by


announced on August 11, 2015.

48. The above statements contained in ¶¶35-47 were materially false and/or

misleading when made because Defendants failed to disclose: (1) that beloranib posed significant

health risks to patients including, death; (2) that, as such, death or other adverse effects were

likely to occur during clinical trials involving beloranib; (3) that, as a result, applications for

approval of treatments involving beloranib were likely to fail FDA scrutiny and/or be delayed;

(4) and that, as a result of the foregoing, the Defendants’ statements about Zafgen’s business,

operations, and prospects, were materially false and misleading and/or lacked a reasonable basis.

Disclosures at the End of the Class Period

49. On Monday, October 12, 2015, Zafgen canceled a roadshow set for the next day

with RBC Capital. The Company also canceled an investor dinner set for Wednesday, October

14, 2015.

50. On this news, shares of Zafgen declined $18.65 per share, or 54%, over two

trading periods to close at $15.75 per share on October 13, 2015, on unusually heavy trading

volume.

51. On October 14, 2015, the Company issued a press release announcing the death of

a patient involved in a beloranib trial. Therein, the Company, in relevant part, disclosed:

BOSTON, Oct. 14, 2015 (GLOBE NEWSWIRE) — Zafgen, Inc.(Nasdaq:ZFGN), a biopharmaceutical company dedicated to significantlyimproving the health and well-being of patients affected by obesity and complexmetabolic disorders, today issued the following statement:


“Zafgen recently learned of a patient death which occurred in the Company’songoing double-blind, randomized, placebo-controlled Phase 3 bestPWS study ofbeloranib in Prader-Willi Syndrome, a rare genetic disorder with a high rate ofmortality linked to obesity and its co-morbidities. The cause of death remainsunknown at this time. According to normal practice, the event was reported to theU.S. Food and Drug Administration, at which point the Agency initiated adiscussion with the Company. The Company is working with the Agency toexpedite a review and understanding of this event, and to determine implicationsof the event on the conduct of the trial, and anticipates providing an update as itsdiscussions with the Agency progress. The thoughts of the Company are with thefamily of the patient at this time. Zafgen remains committed to ensuring the safetyof all patients enrolled in its studies.”

52. Subsequently, on October 16, 2015, the Company issued a press release

announcing that beloranib has been placed on partial clinical hold by the FDA. Therein, the

Company, in relevant part, disclosed:

BOSTON – Oct. 16, 2015 – Zafgen, Inc. (Nasdaq:ZFGN), a biopharmaceuticalcompany dedicated to significantly improving the health and well-being ofpatients affected by obesity and complex metabolic disorders, today announcedthat it received verbal notice late yesterday from the U.S. Food and DrugAdministration (FDA) that beloranib has been placed on partial clinical hold. Thispartial clinical hold impacts ongoing or planned clinical trials, including ZAF-311and ZAF-312. A partial clinical hold is an order that the FDA issues to delay orsuspend part of a sponsor’s clinical work requested under its investigational newdrug (IND) application.

As previously reported, Zafgen learned of a death in the ongoing Phase 3bestPWS study (ZAF-311) of beloranib in Prader-Willi Syndrome (PWS). Whilethe cause of death remains unknown, the patient’s treatment assignment has beenunblinded and it is now known that the patient was receiving beloranib. Due topreviously reported thromboembolic events in ongoing and prior clinical trials ofbeloranib and the unknown nature of the death, the FDA gave verbal notice of apartial clinical hold to institute measures to ensure patient safety. Patientscurrently participating in the ZAF-311 study will be screened for existingthrombotic disease prior to receiving further study drug and regularly monitoredthrough the completion of the study. Given that the study is near complete, at thistime, the Company expects to report top-line results in the first quarter of 2016.Similar screening and monitoring is being considered for the ongoing Phase 2bstudy (ZAF-203) in patients with severe obesity complicated by type 2 diabetes.The Company now anticipates that the PWS Phase 3 clinical trial, ZAF-312, willbe initiated after ZAF-311 is completed and a full assessment of the safety andefficacy of beloranib is performed by the FDA.


“Patient safety is our top priority, and we will work closely with the FDA toimplement these measures to support the further development of beloranib,” saidDr. Thomas Hughes, Chief Executive Officer of Zafgen.

53. On this news, shares of Zafgen declined $10.36 per share, or 50%, to close at

$10.36 per share on October 16, 2015, on unusually heavy trading volume.

CLASS ACTION ALLEGATIONS

54. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased or

otherwise acquired Zafgen securities: (1) pursuant and/or traceable to the Company’s

Registration Statement and Prospectus issued in connection with the Company’s IPO on or about

June 18, 2014, seeking to pursue remedies under the Securities Act; and/or (2) between June 18,

2014 and October 15, 2015, inclusive, seeking to pursue remedies under the Exchange Act; and

were damaged thereby (collectively, the “Class”). Excluded from the Class are Defendants, the

officers and directors of the Company, at all relevant times, members of their immediate families

and their legal representatives, heirs, successors or assigns and any entity in which Defendants

have or had a controlling interest.

55. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Zafgen’s securities were actively traded on the

Nasdaq Stock Market (the “NASDAQ”). While the exact number of Class members is unknown

to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff

believes that there are hundreds or thousands of members in the proposed Class. Millions of

Zafgen shares were traded publicly during the Class Period on the NASDAQ. Record owners

and other members of the Class may be identified from records maintained by Zafgen or its


transfer agent and may be notified of the pendency of this action by mail, using the form of

notice similar to that customarily used in securities class actions.

56. Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

57. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.

58. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

(b) whether statements made by Defendants to the investing public during the

Class Period omitted and/or misrepresented material facts about the business, operations, and

prospects of Zafgen ; and

(c) whether the members of the Class have sustained damages and, if so, what

is the proper measure of damages.

59. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation makes it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.


UNDISCLOSED ADVERSE FACTS

60. The market for Zafgen’s securities was open, well-developed and efficient at all

relevant times. As a result of these materially false and/or misleading statements, and/or failures

to disclose, Zafgen’s securities traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the Class purchased or otherwise acquired Zafgen’s securities

relying upon the integrity of the market price of the Company’s securities and market

information relating to Zafgen, and have been damaged thereby.

61. During the Class Period, Defendants materially misled the investing public,

thereby inflating the price of Zafgen’s securities, by publicly issuing false and/or misleading

statements and/or omitting to disclose material facts necessary to make Defendants’ statements,

as set forth herein, not false and/or misleading. Said statements and omissions were materially

false and/or misleading in that they failed to disclose material adverse information and/or

misrepresented the truth about Zafgen’s business, operations, and prospects as alleged herein.

62. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false and/or

misleading statements about Zafgen’s financial well-being and prospects. These material

misstatements and/or omissions had the cause and effect of creating in the market an

unrealistically positive assessment of the Company and its financial well-being and prospects,

thus causing the Company’s securities to be overvalued and artificially inflated at all relevant

times. Defendants’ materially false and/or misleading statements during the Class Period


resulted in Plaintiff and other members of the Class purchasing the Company’s securities at

artificially inflated prices, thus causing the damages complained of herein.

LOSS CAUSATION

63. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

the economic loss suffered by Plaintiff and the Class.

64. During the Class Period, Plaintiff and the Class purchased Zafgen’s securities at

artificially inflated prices and were damaged thereby. The price of the Company’s securities

significantly declined when the misrepresentations made to the market, and/or the information

alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,

causing investors’ losses.

SCIENTER ALLEGATIONS

65. As alleged herein, Defendants acted with scienter in that Defendants knew that

the public documents and statements issued or disseminated in the name of the Company were

materially false and/or misleading; knew that such statements or documents would be issued or

disseminated to the investing public; and knowingly and substantially participated or acquiesced

in the issuance or dissemination of such statements or documents as primary violations of the

federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their

receipt of information reflecting the true facts regarding Zafgen, his/her control over, and/or

receipt and/or modification of Zafgen’s allegedly materially misleading misstatements and/or

their associations with the Company which made them privy to confidential proprietary

information concerning Zafgen, participated in the fraudulent scheme alleged herein.

APPLICABILITY OF PRESUMPTION OF RELIANCE(FRAUD-ON-THE-MARKET DOCTRINE)


66. The market for Zafgen’s securities was open, well-developed and efficient at all

relevant times. As a result of the materially false and/or misleading statements and/or failures to

disclose, Zafgen’s securities traded at artificially inflated prices during the Class Period. On

March 19, 2015, the Company’s stock closed at a Class Period high of $51.34 per share.

Plaintiff and other members of the Class purchased or otherwise acquired the Company’s

securities relying upon the integrity of the market price of Zafgen’s securities and market

information relating to Zafgen, and have been damaged thereby.

67. During the Class Period, the artificial inflation of Zafgen’s stock was caused by

the material misrepresentations and/or omissions particularized in this Complaint causing the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, Defendants made or caused to be made a series of materially false and/or

misleading statements about Zafgen’s business, prospects, and operations. These material

misstatements and/or omissions created an unrealistically positive assessment of Zafgen and its

business, operations, and prospects, thus causing the price of the Company’s securities to be

artificially inflated at all relevant times, and when disclosed, negatively affected the value of the

Company stock. Defendants’ materially false and/or misleading statements during the Class

Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities

at such artificially inflated prices, and each of them has been damaged as a result.

68. At all relevant times, the market for Zafgen’s securities was an efficient market

for the following reasons, among others:

(a) Zafgen stock met the requirements for listing, and was listed and actively

traded on the NASDAQ, a highly efficient and automated market;


(b) As a regulated issuer, Zafgen filed periodic public reports with the SEC

and/or the NASDAQ;

(c) Zafgen regularly communicated with public investors via established

market communication mechanisms, including through regular dissemination of press releases

on the national circuits of major newswire services and through other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting services;

and/or

(d) Zafgen was followed by securities analysts employed by brokerage firms

who wrote reports about the Company, and these reports were distributed to the sales force and

certain customers of their respective brokerage firms. Each of these reports was publicly

available and entered the public marketplace.

69. As a result of the foregoing, the market for Zafgen’s securities promptly digested

current information regarding Zafgen from all publicly available sources and reflected such

information in Zafgen’s stock price. Under these circumstances, all purchasers of Zafgen’s

securities during the Class Period suffered similar injury through their purchase of Zafgen’s

securities at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

70. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.

The statements alleged to be false and misleading herein all relate to then-existing facts and

conditions. In addition, to the extent certain of the statements alleged to be false may be

characterized as forward looking, they were not identified as “forward-looking statements” when

made and there were no meaningful cautionary statements identifying important factors that


could cause actual results to differ materially from those in the purportedly forward-looking

statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to

any forward-looking statements pleaded herein, Defendants are liable for those false forward-

looking statements because at the time each of those forward-looking statements was made, the

speaker had actual knowledge that the forward-looking statement was materially false or

misleading, and/or the forward-looking statement was authorized or approved by an executive

officer of Zafgen who knew that the statement was false when made.

FIRST CLAIMViolation of Section 11 of The Securities Act

(Against the Section 11 Defendants)

71. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein, except any allegation of fraud, recklessness or intentional misconduct.

72. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C.

§77k, on behalf of the Class, against the Section 11 Defendants.

73. The Registration Statement for the IPO was inaccurate and misleading, contained

untrue statements of material facts, omitted to state other facts necessary to make the statements

made not misleading, and omitted to state material facts required to be stated therein.

74. Zafgen is the registrant for the IPO. The Section 11 Defendants named herein

were responsible for the contents and dissemination of the Registration Statement.

75. As issuer of the shares, Zafgen is strictly liable to Plaintiff and the Class for the

misstatements and omissions.

76. None of the Section 11 Defendants named herein made a reasonable investigation

or possessed reasonable grounds for the belief that the statements contained in the Registration

Statement were true and without omissions of any material facts and were not misleading.


77. By reasons of the conduct herein alleged, each Section 11 Defendant violated,

and/or controlled a person who violated Section 11 of the Securities Act.

78. Plaintiff acquired Zafgen shares pursuant and/or traceable to the Registration

Statement for the IPO.

79. Plaintiff and the Class have sustained damages. The value of Zafgen common

stock has declined substantially subsequent to and due to the Section 11 Defendants’ violations.

SECOND CLAIMViolation of Section 15 of The Securities Act

(Against the Section 11 Individual Defendants)


fully set forth herein, except any allegation of fraud, recklessness or intentional misconduct.

81. This count is asserted against the Section 11 Individual Defendants and is based

upon Section 15 of the Securities Act.

82. The Section 11 Individual Defendants, by virtue of their offices, directorship, and

specific acts were, at the time of the wrongs alleged herein and as set forth herein, controlling

persons of Zafgen within the meaning of Section 15 of the Securities Act. The Section 11

Individual Defendants had the power and influence and exercised the same to cause Zafgen to

engage in the acts described herein.

83. The Section 11 Individual Defendants’ positions made them privy to and provided

them with actual knowledge of the material facts concealed from Plaintiff and the Class.

84. By virtue of the conduct alleged herein, the Section 11 Individual Defendants are

liable for the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages

suffered.

THIRD CLAIMViolation of Section 10(b) of


The Exchange Act and Rule 10b-5Promulgated Thereunder Against the Company and the Individual Defendants


fully set forth herein.

86. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing

public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and

other members of the Class to purchase Zafgen’s securities at artificially inflated prices. In

furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,

took the actions set forth herein.

87. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (iii) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

maintain artificially high market prices for Zafgen’s securities in violation of Section 10(b) of the

Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the

wrongful and illegal conduct charged herein or as controlling persons as alleged below.

88. Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about Zafgen’s financial

well-being and prospects, as specified herein.

89. These defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Zafgen’s value and


performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and/or omitting to state

material facts necessary in order to make the statements made about Zafgen and its business

operations and future prospects in light of the circumstances under which they were made, not

misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of the Company’s

securities during the Class Period.

90. Each of the Individual Defendants’ primary liability, and controlling person

liability, arises from the following facts: (i) the Individual Defendants were high-level executives

and/or directors at the Company during the Class Period and members of the Company’s

management team or had control thereof; (ii) each of these defendants, by virtue of their

responsibilities and activities as a senior officer and/or director of the Company, was privy to and

participated in the creation, development and reporting of the Company’s internal budgets, plans,

projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and

familiarity with the other defendants and was advised of, and had access to, other members of the

Company’s management team, internal reports and other data and information about the

Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants

was aware of the Company’s dissemination of information to the investing public which they

knew and/or recklessly disregarded was materially false and misleading.

91. The defendants had actual knowledge of the misrepresentations and/or omissions

of material facts set forth herein, or acted with reckless disregard for the truth in that they failed

to ascertain and to disclose such facts, even though such facts were available to them. Such

defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and


for the purpose and effect of concealing Zafgen’s financial well-being and prospects from the

investing public and supporting the artificially inflated price of its securities. As demonstrated

by Defendants’ overstatements and/or misstatements of the Company’s business, operations,

financial well-being, and prospects throughout the Class Period, Defendants, if they did not have

actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to

obtain such knowledge by deliberately refraining from taking those steps necessary to discover

whether those statements were false or misleading.

92. As a result of the dissemination of the materially false and/or misleading

information and/or failure to disclose material facts, as set forth above, the market price of

Zafgen’s securities was artificially inflated during the Class Period. In ignorance of the fact that

market prices of the Company’s securities were artificially inflated, and relying directly or

indirectly on the false and misleading statements made by Defendants, or upon the integrity of

the market in which the securities trades, and/or in the absence of material adverse information

that was known to or recklessly disregarded by Defendants, but not disclosed in public

statements by Defendants during the Class Period, Plaintiff and the other members of the Class

acquired Zafgen’s securities during the Class Period at artificially high prices and were damaged

thereby.

93. At the time of said misrepresentations and/or omissions, Plaintiff and other

members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff

and the other members of the Class and the marketplace known the truth regarding the problems

that Zafgen was experiencing, which were not disclosed by Defendants, Plaintiff and other

members of the Class would not have purchased or otherwise acquired their Zafgen securities,


or, if they had acquired such securities during the Class Period, they would not have done so at

the artificially inflated prices which they paid.

94. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder.

95. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company’s securities during the Class Period.

SECOND CLAIMViolation of Section 20(a) of

The Exchange Act Against the Individual Defendants


fully set forth herein.

97. The Individual Defendants acted as controlling persons of Zafgen within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company’s operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had

the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Plaintiff contends are false and misleading. The Individual Defendants were

provided with or had unlimited access to copies of the Company’s reports, press releases, public

filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after

these statements were issued and had the ability to prevent the issuance of the statements or

cause the statements to be corrected.


98. In particular, each of these Defendants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

99. As set forth above, Zafgen and the Individual Defendants each violated Section

10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of

their positions as controlling persons, the Individual Defendants are liable pursuant to Section

20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,

Plaintiff and other members of the Class suffered damages in connection with their purchases of

the Company’s securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for relief and judgment, as follows:

(a) Determining that this action is a proper class action under Rule 23 of the Federal

Rules of Civil Procedure;

(b) Awarding compensatory damages in favor of Plaintiff and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

(d) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated:By:_____DRAFT__________


[NAME HERE]

GLANCY PRONGAY & MURRAY LLPLionel Z. GlancyRobert V. ProngayLesley F. Portnoy1925 Century Park East, Suite 2100Los Angeles, CA 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160

LAW OFFICES OF HOWARD G. SMITHHoward G. Smith3070 Bristol Pike, Suite 112Bensalem, PA 19020Telephone: (215) 638-4847Facsimile: (215) 638-4867

Attorneys for Plaintiff __________

district of massachusetts plaintiff, individually and on ... · 27. defendant cowen and company,...

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