Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

Zafgen, Inc.

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Zafgen, Inc.

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PART I – FINANCIALI—FINANCIAL INFORMATION

ZAFGEN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ZAFGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ZAFGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)thousands, except share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ZAFGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ZAFGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

Zafgen, Inc., or the Company, was incorporated on November 22, 2005 under the laws of the State of Delaware. The Company is a biopharmaceutical company dedicated to significantly improving the health and well-beingthat has leveraged its proprietary knowledge of patients affected by type 2 diabetes, rare diseases and other metabolic diseases. The Company is focused on developing novel therapeutics that treat the underlying biological mechanisms through the methionine aminopeptidase 2 (“MetAP2”) pathway. The Company has pioneeredpathway to pioneer the study of MetAP2 inhibitors in both common and rare formsmetabolic disorders.

Following an extensive process of obesity.evaluating strategic alternatives for the Company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, on December 17, 2019, the Company entered into an Agreement and Plan of Merger, or the Merger Agreement, with Chondrial Therapeutics, Inc., or Chondrial, pursuant to which a wholly owned subsidiary of the Company will merge with and into Chondrial, with Chondrial continuing as the surviving corporation of the merger and a wholly owned subsidiary of the Company, or the merger. Under the exchange ratio formula in the Merger Agreement, as of immediately after the merger, the former Chondrial securityholders are expected to own approximately 60% of the outstanding shares of the Company’s common stock on a fully-diluted basis and the Company’s stockholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of the Company’s common stock on a fully-diluted basis. The relative percentage ownership of the combined company was derived using a stipulated value of Chondrial of approximately $67.5 million and of the Company of approximately $45.0 million. The Company’s lead product candidatevaluation was determined based on a projected net cash, cash equivalents and marketable securities balance minus outstanding liabilities, as defined in the Merger Agreement, of $40.0 million as of a determination date prior to the closing of the merger, but subject to adjustment as described below, plus an additional $5.0 million of enterprise value. If the Company’s actual net cash isZGN-1061, between $39.5 million and $40.5 million, no adjustment will be made to the ownership percentages based on the Company’s net cash. The Company’s target net cash, lower target net cash and upper target net cash amounts will be reduced by $21,311 per day beginning on March 31, 2020 through the closing date of the merger, and the Chondrial valuation will be increased by $111,656 per day beginning on March 31, 2020 through the closing date of the merger, resulting in a novel fumagillin-class MetAP2 inhibitor administeredcorresponding adjustment to the exchange ratio and an increase to the ownership percentage of Chondrial’s stockholder in the combined company.

The Merger Agreement provides the Company and Chondrial with specified termination rights, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $3,375,000. In addition, in connection with certain terminations of the Merger Agreement, either party may be required to pay the other party’s third party expenses up to $350,000. In connection with the merger, the Company will seek to amend its certificate of incorporation to: (i) effect a reverse split of the Company’s common stock at a ratio to be determined by subcutaneous injection,the Company and Chondrial, which is currently being profiled for its utility inintended to ensure that the treatmentlisting requirements of type 2 diabetesthe Nasdaq Global Market are satisfied and other related metabolic disorders. Since its inception,(ii) change the name of Zafgen, Inc. to “Larimar Therapeutics, Inc.”

The Company’s and Chondrial’s obligations to consummate the merger are subject to the satisfaction or waiver of customary closing conditions, including, among others, obtaining the requisite approvals of the Company’s stockholders and satisfaction of minimum net cash thresholds of $30,000,000 by the Company and not less than zero by Chondrial. The sole stockholder of Chondrial has devoted substantiallyapproved the Merger Agreement. In connection with the execution of the Merger Agreement, the Company entered into stockholder support agreements with its current directors and certain officers and the Company’s largest stockholder, which collectively beneficially own or control an aggregate of approximately 9.7% of its outstanding shares of common stock. Each of the stockholders party to such stockholder support agreements has agreed to vote or cause to be voted, all of its effortsthe shares of the Company’s common stock beneficially owned by such stockholder in favor of the stockholder proposals submitted at the Company’s stockholders meeting to research and development, recruiting management, acquiring operating assets and raising capital. Currently,be held in connection with the Company is focusing its personnel and financial resources onZGN-1061 and the discovery of novel and highly differentiated MetAP2 inhibitors.merger.

The Company is subjectexpects to risks commondevote significant time and resources to companies in the biotechnology industry including, but not limited to, new technological innovations, protectioncompletion of proprietary technology, dependence on key personnel, compliancethe merger with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

The Company’s product candidates are all in the research and development stage. ThereChondrial. However, there can be no assurance that such activities will result in the Company’s research and development will be successfully completed, that adequate protection forcompletion of the Company’s intellectual property will be obtained, that any product candidates developed will obtain necessary government regulatory approvalmerger. Further, the completion of the merger ultimately may not deliver the anticipated benefits or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.enhance shareholder value.

The Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2017,March 31, 2020, the Company had an accumulated deficit of $276.5$399.9 million. From its inception through September 30, 2017,March 31, 2020, the Company received net proceeds of $333.3$397.9 million from the sales of redeemable convertible preferred stock, the issuance of convertible promissory notes, the proceeds from its initial public offering (“IPO”) in June 2014 and itsfollow-on offering offerings in January 2015.2015 and July 2018. On July 2, 2018, the Company completed a public offering of its common stock, which resulted in the sale of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs. As disclosed in Note 5 to the condensed consolidated financial statements, the Company has a term loan with an aggregate principal balance of $12.7 million as of March 31, 2020 The loan agreement requires that the Company maintain certain minimum liquidity at all times, which as of March 31, 2020 was approximately $13.4 million. If the minimum liquidity covenant is not met, the Company may be required to repay the loan prior to scheduled maturity dates. The Term Loan also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against the Company and the collateral securing the amounts due under the Term Loan. These events of default include, among other things, failure to pay any

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amounts due under the Term Loan, insolvency, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness and a final judgment against the Company in an amount greater than $0.3 million. During the quarter ended March 31, 2020 the Company was in compliance with all covenants under the term loan. The Company has estimated that the risk of subjective acceleration under the Term Loan’s material adverse events clause is reasonably possible, however not probable and therefore has classified the outstanding principal balance in current and long-term liabilities based on contractually scheduled principal payments. However, the assessment of such probability of the debt holder calling the debt is subjective and their actions and/or the Company’s related assessment could change in the future, which in turn would impact the classification of the debt balances.

Based on its current operating plans, the Company believes its cash, cash equivalents and marketable debt securities of $63.9 million as of March 31, 2020, will be sufficient to fund its anticipated level of operations, capital expenditures and satisfy debt repayments for a period of at least 12 months from the date of this Quarterly Report. Until such time, if ever, as the Company can generate substantial product revenue, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other sources of funding. The Company expects to generate operating losses for the foreseeable future. If the Company is unable to raise additional funds through equity or debt financings, or licensing arrangements when needed, the Company may be required to delay, limit, reduce or terminate future product development or future commercialization efforts or grant rights to develop and market products or product candidates that the Company would otherwise prefer to develop and market itself. Based on its current operating plans,ourselves.

On April 21, 2020, the Company believes its cash, cash equivalents and marketable securitiesreceived a deficiency letter from the Listing Qualifications Department of $93.2 millionthe Nasdaq Stock Market notifying it that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market, referred to as of September 30, 2017 will be sufficient to fund its anticipated level of operations and capital expenditures for athe minimum bid price rule. In accordance with Nasdaq Listing Rules, the Company has an initial period of at least one year180 calendar days. On April 16, 2020, Nasdaq announced it was providing temporary relief from continued listing bid price requirements through June 30, 2020. Under the issuance daterelief the Company will have additional time to regain compliance with the listing bid price requirements with the compliance period beginning July 1, 2020. As such, the compliance period for the Company will expire on December 28, 2020. The Company is actively monitoring its stock price and will consider any and all options available to the Company to maintain compliance. The alternatives to trading on the Nasdaq Capital Market or another national securities exchange are generally considered to be less efficient and less broad-based than the national securities exchanges and the liquidity of this Quarterly Report.the Company’s common stock will likely be reduced if we fail to regain compliance with the minimum bid price rule.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Zafgen Securities Corporation, Zafgen Australia Pty Limited, and Zafgen Animal Health, LLC.LLC, and Zordich Merger Sub, Inc. All intercompany balances and transactions have been eliminated.

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of December 31, 20162019 was derived from the Company’s audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America or GAAP.(“GAAP”). The accompanying unaudited condensed consolidated financial statements as of September 30, 2017March 31, 2020 and for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission or SEC,(“SEC”), for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2016,2019, included in the Company’s Annual Report onForm 10-K, for the year ended December 31, 2016,2019, on file with the SEC. In the opinion of management, all adjustments, consisting only of normal

recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of September 30, 2017March 31, 2020 and condensed consolidated results of operations and cash flows for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 have been made. The results of operations for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017.2020.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

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Marketable debt securities

Marketable debt securities consist of debt investments with original maturities greater than 90ninety days. The Company has classified its debt investments with maturities beyond one year as short term, based on their highly liquid nature and because such marketable debt securities represent the investment of cash that is available for current operations. The Company considersclassifies its investment portfolio of investmentsmarketable debt securities asavailable-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. UnrealizedWhen the fair value is below the amortized cost the amount of the expected credit loss is estimated. The credit-related impairment amount is recognized in net income; the remaining impairment amount and unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gainsCredit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses and declines in value judged to be other than temporary are includedrecognized as a componentreversal of other income (expense), net based on the specific identification method. When determining whether a decline in value is other than temporary, the Company considers various factors, including whetherallowance account. If the Company has the intent to sell the security and whetheror it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis. Fairbasis, the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is determined based on quoted market prices.recorded in net income.

Net Income (Loss)Loss Per Share

Basic net income (loss)loss per share is computed by dividing the net income (loss)loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss)loss per share attributable to common stockholders is computed by dividing the diluted net income (loss)loss attributable to common stockholders by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted common shares, as determined using the treasury stock method. For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is antidilutive.

The Company excluded the following common stock equivalents, outstanding as of September 30, 2017March 31, 2020 and 2016,2019, from the computation of diluted net loss per share for the three months ended September 30, 2017March 31, 2020 and 20162019 because they had an anti-dilutive impact due to the net loss incurred for the periods:

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption could have a material adverse effect on the Company’s business. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, all of which are uncertain and cannot be predicted. The Company is required to have a net cash balance of at least $30,000,000 at the closing of the merger as a condition to Chondrial’s obligation to consummate the merger. For purposes of the merger agreement, net cash is subject to certain reductions, including, without limitation, accounts payable, accrued expenses (except those related to the merger), current liabilities payable in cash, unpaid expenses related to the merger and certain other unpaid obligations, including outstanding lease obligations. The liability with regards to the Company’s outstanding lease obligations is a large component of the Company’s net cash and COVID-19 has created uncertainties surrounding our ability to take the steps necessary to sublease or negotiate a buy-out of our existing leases. In the event that the Company’s net cash falls below this threshold, a condition to the Chondrial’s obligation to consummate the merger will fail to be satisfied and Chondrial will have the right to terminate the merger agreement at an outside date of September 17, 2020 (subject to extension as provided in the merger agreement) if the Company’s net cash continues to be lower than the $30,000,000 threshold. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Recently Issued and Adopted Accounting Pronouncements

In May 2014,June 2016 the Financial Accounting Standards Board (the “FASB”(“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers2016-13, Financial Instruments - Credit Losses (Topic 606),326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The newhave the same effective date and transition date of January 1, 2020. This standard requires a company

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entities to recognize revenue when it transfers goods or servicesestimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to customers inlong-term financings and report credit losses using an amountexpected losses model rather than the incurred losses model that reflects the consideration that the company expects to receive for those goods or services. The FASB has continued to issue accounting standards updates to clarifywas previously used, and provide implementation guidanceestablishes additional disclosures related to Revenue from Contractscredit risks. For available-for-sale debt securities with Customers, includingASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations,ASU 2016-10,Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, andASU 2016-12,Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.These amendments address a numberunrealized losses, the standard now requires allowances to be recorded instead of areas, includingreducing the entity’s identification of its performance obligations in a contract, collectability,non-cash consideration, presentation of sales tax and an entity’s evaluationamortized cost of the natureinvestment. This standard limits the amount of its promisecredit losses to grant a licensebe recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of intellectual property and whether or not that revenue ispreviously recognized over time or at a point in time. These new standards will becredit losses if fair value increases.

This standard became effective for the Company beginning January 1, 2018. The Company early adopted the standard as of January 1, 2017, however there is no impact of this new guidance on its condensed consolidated financial statements as it does not currently have any revenue generating arrangements.

In February 2016, the FASB issued ASUNo. 2016-02,Leases. This guidance will require that lease arrangements longer than 12 months result in an entity recognizing an asset and liability equal to the present value of the lease payments in the statement of financial position. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. This standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Early adoption is permitted. The Company is evaluating the effect that this guidance will have on its condensed consolidated financial statements.

In March 2016, the FASB issued ASUNo. 2016-09,Improvements to Employee Share-Based Payment Accounting. This standard was adopted on January 1, 20172020, and based on a modified retrospective basis. As a result the Company has made an accounting policy election to account for forfeitures as they occur. Thecomposition of the Company’s marketable debt securities, current economic conditions and historical credit loss activity, the adoption of this guidance also requires excess tax benefits and tax deficiencies be recorded in the income statement as opposed to additionalpaid-in capital when the awards vest or are settled. The adoption of this guidance had an immaterialstandard did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017.related disclosures.

In August 2016,2018 the FASB issued ASUNo. 2016-15,2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value MeasurementStatement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This guidance addresses the presentation and classification ofstandard modifies certain cash receipts and cash payments in the statement of cash flows. Thedisclosure requirements on fair value measurements. This standard will bebecame effective for annual periods beginning after December 15, 2017, and interim periods therein. Earlythe Company on January 1, 2020. The adoption is permitted. The Company is evaluatingof this standard did not have a material impact on the effect that this guidance will have on its condensed consolidated financial statements.Company’s disclosures.

In May 2017, the FASB issued ASUNo. 2017-09,Compensation – Stock Compensation: Scope of Modification Accounting. This guidance addresses which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard will be effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. The Company is evaluating the effect that this guidance will have on its condensed consolidated financial statements.

3. Fair Value Measurements and Marketable Debt Securities

Fair Value Measurements

The following tables present information about the Company’s financial assets that have been measured at fair value as of September 30, 2017March 31, 2020 and December 31, 2016,2019 and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. During the nine months ended September 30, 2017, there were no transfers between Level 1 and Level 2 financial assets.

The following tables summarize the Company’s cash equivalents and marketable debt securities as of September 30, 2017March 31, 2020 and December 31, 2016:2019: