Purchase stock in a Net-Net for less than a Value Investing Rock Star paid
OK, I just came thiiiiiis close to picking up a position in Targacept (TRGT). This small biotech company sold off nearly 30% the other day on news that should have been fairly obvious to anyone who is familiar with it.
The news that cause the stock to plunge was the official announcement that AstraZeneca (AZN) and Targacept had pulled the plug on a depression drug that had reached Phase Three Trials. Again, anyone who knew anything in TRGT should have been aware of the fact that the trials were not producing the results that the companies had hoped. Heck I believe that AstraZeneca has essentially already written off the drug. Yes, somehow the stock had a massive sell-off anyhow. Was it people shorting it? Who knows. I can't imagine anyone why had held it to this point selling because of this.
So, now that "TC-5214" is officially toast, what's left at Targacept? First of all, we have a company that as of the end of the last quarter had $249.3 million in cash on the books...yet a market cap of only $172 million. Sure biotech companies like this are notorious for burning through cash, but Targacept is partnering with some of the Big Pharma players on the drugs that it still has in its pipeline, so that should help to slow some of the cash burn.
The real question here then is whether the drugs that TRGT has in its pipeline are any good. I certainly am not biotech expert, so I couldn't say. However a lot of people out there believe that TRGT does indeed have some decent drugs in development and that it could be a takeover target for a larger company looking to expand its pipeline, which essentially all of them are.
Another major plus for TRGT, is that I believe its largest shareholder is none other than the Value Investing Rock Star Seth Klarman. When he has a position in a stock, it's usually worth taking a look at.
I'm already down big in CAPS after picking up a position in Targacept when Klarman first announced his. Anyone who buys the stock today can get a significantly better price than he did. Are there any biotech experts out there who would care to share their thoughts on Targacept? It's looking very tempting at this level, though as I mentioned I decided not to purchase any shares in real-life yet for some reason (perhaps it's my lack of biotech expertise).
Thanks for reading and have a great weekend everyone!