Professor Mike Lord Weighs in on Targacept Inc. Shareholder Shuffling

2.11.2012 Article, Business Analytics, Faculty News

Targacept has new top shareholder
Reposted from Winston-Salem Journal | by Richard Craver

Targacept Inc. has experienced a major shuffling of its top shareholders in the past three months, possibly spurred by the uncertainty surrounding its most promising drug research.

However, since large shareholders are required to report their holdings only once a year, it also could reflect the ownership stakes acquired in May when Targacept sold 3.66 million shares to investors.

The Baupost Group LLC, a Boston investment group, has become Targacept's top shareholder with a 17.9 percent stake, or 6 million shares, according to a regulatory filing Friday.

Meanwhile, two long-term shareholders have substantially reduced their stakes.

FMR LLC has decreased its holdings from 4.3 million shares, or 15 percent, on Feb. 14, 2011, to 1.6 million shares, or 4.8 percent, on Dec. 12, 2011.

Wellington Management Co. LLP has reduced its stake from 3.25 million shares, or 11.4 percent, in February 2011 to 1 million shares, or 3 percent, on Jan. 10, 2012.

Before Baupost, the previous largest shareholder was New Enterprise Associates, a venture-capitalist firm based in Baltimore that holds a 15.7 percent stake, or 4.6 million shares, according to a Targacept regulatory filing in April.

New Enterprise was an early investor in Targacept, which conducted its initial public offering in April 2006. James Barrett, a general partner with New Enterprise, has been a member of Targacept's board of directors since November 2002.

Targacept is an anchor tenant in the Piedmont Triad Research Park in downtown Winston-Salem with 150 employees. The company develops drugs based on its understanding of nicotinic receptors to treat diseases of the central nervous system.

Targacept's share price is down 80 percent from a record high of $30.42 on March 3, and down nearly 70 percent since its first failed clinical trial with TC-5214 — which targets major depressive disorder — was announced Nov. 8. The share price was down 14 cents Friday to close at $6.07.

Targacept has experienced failures in the first two of four Phase 3 trials with TC-5214. It expects to release the findings of the third and fourth trials in the first half of this year.

Analysts have said the main reason for the share-price plunge is that there was significant optimism that Targacept and leading pharmaceutical partner AstraZeneca PLC "had a potential blockbuster on their hands with a very new approach to treating major depression."

Some analysts, as well as Targacept's management team, cite the potential TC-5214 still holds, as well as its remaining research pipeline that includes drugs for Alzheimer's disease, adult attention-deficit hyperactivity disorder, asthma, diabetes and other inflammatory diseases.

AstraZeneca recently approved proceeding with a clinical trial for a second promising compound for Alzheimer's.

"It's a bit of rebalancing on the one hand, and bargain buying on the other," said Michael Lord, an associate professor of management at Wake Forest University. "That's probably the main dynamic going on.

"For every seller, there's usually a buyer, especially if there's potentially a relative bargain. Admittedly, however, there's also more risk as well. Some investors have the patience and risk tolerance, some don't."