Today's report key to future for Targacept

The most important research report in Targacept Inc.'s history will be revealed today.

What the data say about Targacept's depression drug, known as TC-5214, could intensify the biotechnology spotlight that's been on the Winston-Salem company for the past four months.

Officials will present the results at 6 p.m. at a neuroscience conference in Chicago.

Analysts said that breakthrough results also could attract a too-good-to-pass-up offer from a major pharmaceutical company, which could uproot Targacept -- an anchor tenant in Piedmont Triad Research Park since it spun out of R.J. Reynolds Tobacco Co. in 2000.

The possibility of Targacept being bought, while potentially good news for the company and its investors, is creating some local nervousness.

Forsyth County has already experienced the sale of Wachovia Corp. and the loss of its headquarters and 1,300 jobs in 2001, and the elimination of thousands of jobs in traditional manufacturing and new-economy companies -- most recently 905 jobs at Dell Inc. and 300 jobs at Pace Airlines Inc.

Targacept develops drugs based on its understanding of nicotinic receptors to treat diseases of the central nervous system. It has 115 employees, making it one of the largest life-sciences employers in the Triad.

Don deBethizy, the president and chief executive of Targacept, said he understands the sensitivity to the company's potential success.

DeBethizy stressed that the company's goal is to remain independent and local.

"If your strategy was to get acquired by somebody, then you wouldn't have done two major pharma deals," he said. "Most pharmaceutical companies would rather rent than buy."

Partnerships with AstraZeneca PLC and GlaxoSmithKline have served as Targacept's funding lifeline. Neither is involved in the development of TC-5214. Targacept's four-year partnership with AstraZeneca will expire in December.

Still, Bret Holley, an analyst with Oppenheimer & Co., said that there is "a reasonable possibility that Targacept is acquired." That's based on the potential for TC-5214 to generate sales of more than $1 billion in 2017 if it is introduced for consumer use by 2013.

"We see a high like­lihood of a major TC-5214 partnership in the fourth quarter of 2009 or first half of 2010," Holley said in a note to investors. "We expect competition for TC-5214 rights, leading to very favorable deal terms for Targacept.

"We also see a reasonable possibility that Targacept is acquired based on TC-5214's potential, rights to AZD-3480, and the company's neuronal nicotinic receptor platform."

The AZD-3480 compound deals with adult attention deficit/hyperactivity disorder.

Since Targacept released preliminary results on TC-5214 in July, its share price has soared from $2.44 on July 8 to a record high of $22.50 on Oct. 7. It closed yesterday at $18.49, down $1.02.

The company also was able to raise at least $46.2 million in a public stock offering last week.

Despite the share-price surge, there have been naysayers who say that Targacept's stock is overvalued. They typically take a "we'll believe it when we see it" approach to potential biotechnology breakthroughs since many companies have failed to reach their potential.

DeBethizy said that prospective partners "have crawled all over the data. They are waiting to confirm what we've been saying in general terms are true in specifics."

DeBethizy said that Targacept's goal is to have a partner by June 30 to move TC-5214 into a Phase 3 trial.

"It's turned out to be a much bigger product because of the tolerability and safety of the product," he said. "We need a significant pharma player to help us get to market, and that's what we're sorting through right now to get optimum value."

Gayle Anderson, the president and chief executive of the Greater Winston-Salem Chamber of Commerce, said she understands why Targacept might be highly sought by pharmaceutical companies. For more than 20 years, the chamber has been a leading supporter of developing a biotechnology cluster to help diversify the local economy.

"There's always a possibility that successful companies can be purchased and moved," Anderson said. "However, we will do everything possible to make the business case for why Targacept's success here would continue to be beneficial for the further development of its compounds."

Adam Feuerstein, an analyst with TheStreet.com, said that the key data in the report is related to the Hamilton Rating Scale for Depression.

"A two-point improvement for TC-5214 on this depression scale is important because that's the same effect size seen with Bristol-Myers Squibb's Abilify, which received an expanded FDA approval as an add-on treatment to anti­depressant therapy in late 2007," Feuerstein said.

rcraver@wsjournal.com


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