Targacept , Inc. (NASDAQ:TRGT)

After getting horsewhipped by Targacept in the real world, I've retreated with my tail between my legs to CAPS. Ever since positive results of the phase IIb trial of TC-5214 in depression blew the share price up as much as 800% in 2009 and 2010, the company's story has been one pathetic failure after another. In fact, the only thing the company has done right is pick AstraZeneca's pocket to the tune of 200M for TC-5214 and raise another 100M or so via dilution at high share prices. Aside from the phase III trials of TC-5214, notable pipeline failures have been TC-6987 for diabetes and asthma as well as TC-5219 for ADHD.

For the last year, the stock has tediously fluctuated between 4 and 5. The company still had 185M in cash at the end of 2012 but the market cap has remained lower than the cash position for so long that it seems to have become the de facto leitmotif of the stock. The next catalyst is likely to be topline data from the phase IIb trial of TC-5619 in schizophrenia, expected in Q4 2013. The only other advanced trial of progress is a phase IIb trial of AstraZeneca-partnered AZD3480 in Alzheimer's, with topline data expected in mid 2014.

Needless to say, with cash of 185M and a market cap of 144M, expectations for any future success are low. But the cash does provide a cushion against further declines until at least the next quarterly statement resets the equation. I may have gotten thrashed to the tune of a few thousand dollars on this stock, but hopefully a few small wins in CAPS will provide some slight salve for my wounds.

Am I reading this right?

1Q 2013 Balance Sheet :

Cash $166MM + ST Investments $48MM = $214MM

Shares Outstanding 33.61MM

So $6.37 per share in cash and ST investments with almost no debt (looks like about $2MM in long term debt)? They also have a few potential drug candidates that look like they stand a decent shot at approval. Am I willing to buy $6.37 in cash for $4.25 / share with a good shot at a drug approval over the next two years? You're darn right. I would venture a guess that this will bounce higher between now and the end of the year. I would say $7 is a possible target by end of 2013.

Due for a run up by early summer.

What they said on the 3Q'12 call:

TC-5619 schizo results now 4Q'13
AZD3480 Alzheimer's results middle 2014

Long wait.

This stock can't possibly get beat up anymore.... (knocks on wood)... interesting mechanism of action, figure some movement in the clinical development status will up the price

Stock got crushed....has to be some value here.

Targacept carries more cash on their books than their present market cap. It is especially attractive at this price. They have a strong strategic relationship with AZN. They have a deep pipeline targeting broad markets. In one example TC-6987 was studied in two phase-2 protocols in both diabetes and asthma. The diabetes study was no better than placebo in controlling fasting blood sugar, while the asthma study demonstrated statistically significant symptom improvements versus placebo. The compound was also well tolerated with few adverse events in either study. While the diabetes study showed no benefit the tolerability and pharmacokinetic data is still useful in furthering study for an asthma indication. Bringing drugs from the lab to market remains expensive and serendipitous. All it takes is one moderately successful drug to make this company. Targacept has the capital, expertise, and pipeline to produce at least one such candidate.

Many have already commented on the ludicrous value being assigned to TRGT. Several good potential drugs in the pipeline and trading at less than cash and ST invetments. I have bought in RL @ $5.19.

Do your own research.

I am puzzled both by valuation and short ratio for TRGT.

Zzlangerhans has a longer informative piece written here. Since then we have had a decision to drop TC-5214 (no big surprise, although the chart shows that market decided to be surprised three times in a row), a positive decision by AstraZeneca to move forward with AZD-1446 and a 50/50 outcome for TC-6987.

In summary, we now we have a company with two serious partnerships with big pharma and still a decent pipeline trading at below enterprise value. At these depressed levels and with their cash I would think that any risks from dilution are nil for another year at least, so I really wonder what is the rationale going or staying short at this point? Where would the downside risk come from?

I am leaning heavily in the other direction and have allocated abnormally high share of my portfolio to TRGT at average cost of $5.12.

Seth Klarman has a large position, couple of promising drugs.

Strong pipeline, wide-ranging applications to NNR research, and smart management. If I had real money, this is the long term longshot that I'd put 20% of it into.

Good Fundamentals. Plenty of Cash to sustain/survive. Oversold.

Trading at less than cash. Some pipeline-desperate pharma will pick it up.

Sales are close to breakeven. Price/salews unusually low for a biotech company. Stock is trending up and has almost closed the December gap. Consider a tight stop on this one.

Instrinsic value

Klarman buy

Great line of drugs coming & nearing approval

Going to come back to reality.

I am with UltraLong on this.