Kicking the habit

Merger makes Catalyst public and advances clinical trial goals, while ending Targacept’s nicotine R&D

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SOUTH SAN FRANCISCO, Calif.—A newly-announced merger will bring an end to the 15-year long quest of Winston-Salem-based Targacept to find therapuetic value in nicotine. The company, which formed in 2000 as a spin-off from tobacco company R.J. Reynolds, has for years struggled to achieve its ambitious goal of developing nicotine-based treatments to treat brain disorders ranging from Alzheimer’s disease to depression. Last month, Targacept reached an agreement with South San Francisco-based Catalyst Biosciences that will combine the two companies into a single entity that is focused on developing new treatment options for patients with bleeding disorders and complement-mediated diseases. This deal will transform Catalyst from a privately-held firm into a public company.
“Our team at Catalyst has been actively pursuing strategies to access the resources necessary to advance our product candidates into the clinic,” Nassim Usman, CEO of Catalyst, told investors in a March 7 conference call. “The proposed combination of Targacept and Catalyst enables us to combine with a public company while providing the financial resources needed to advance what we believe will be a valuable and deep pipeline.”
Catalyst is a biopharmaceutical company that specializes in engineering proteases in the fields of hemostasis and anticomplement. It is particularly focused on developing its drug candidates for hemophilia, age‐related macular degeneration and inflammation. Over the last several years the company has established valuable research and development partnerships, including an exclusive worldwide collaboration with Pfizer for the discovery, development and commercialization of products to treat hemophilia and other bleeding conditions.
Targacept was founded by scientists with R.J. Reynolds who believed that nicotine could have significant therapeutic potential, despite its association with the health hazards that come with smoking. The company attracted substantial investor capital over the years and developed an abundant body of research, but none of its products ever found success. Targacept CEO and President Stephen Hill told the Winston-Salem Journal last month that results of the company’s research simply didn’t justify moving forward in the same direction. “It was my vision and my hope that Targacept would see at least one positive clinical trial result,” he said. “The clinical trials were well done. We were just disappointed that none of them produced sufficient results to go to the marketplace with.”
The new combined company will not pursue Targacept’s nicotine-focused research, and will instead explore the possibility of selling rights to the associated intellectual property. “Whether there is any residual value is difficult to tell, but if there is value it will accrue to Targacept shareholders,” Hill said in the March 7 conference call.
Targacept and Catalyst will combine their operations, but the new company will adopt Catalyst’s name and its location in South San Francisco. Targacept has about $35 million in remaining cash that will be transferred to the combined company while Catalyst will contribute $5 million. Usman will serve as CEO of the new company, while Hill will serve on its board of directors.
The deal will leave stockholders of Catalyst with 65 percent ownership of the combined company, with Targacept stockholders owning the rest. Targacept stockholders will also receive a dividend of an aggregate of $37 million in non-interest-bearing redeemable convertible notes and approximately $20 million in cash.
“This transaction with Catalyst reflects the continued commitment of Targacept’s board of directors and management team to deliver value to Targacept stockholders and make a difference in patients’ lives,” said Hill. “The proposed transaction employs an innovative structure that is designed to optimize stockholder value for both Catalyst and Targacept. Substantial capital is committed to the combined entity, potential additional capital is earmarked for future investment into the combined company if the notes are converted and a special dividend is provided for existing Targacept stockholders at the closing.”
The combined company emerges with a pipeline that includes several protease therapeutics and four additional drug candidates. One of the most notable protease candidates is a PF-05280602, an engineered factor VIIa drug candidate that successfully completed a Phase 1 clinical trial and is being developed by Pfizer under license from Catalyst. PF-05280602 is designed to address a hemophilia market valued at approximately $1.5 billion. The drug may have the potential to enable lower and fewer doses of an engineered factor VIIa to control bleeding episodes and to achieve effective prophylaxis in hemophilia inhibitor patients.
Other promising drug candidates in the new company’s pipeline include an improved factor IX for hemophilia B, an engineered factor Xa that can potentially be used for both hemophilia and the control of bleeding in non-hemophilia patients, and two novel proteases for the treatment of complement-mediated disorders.

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