Targacept and Catalyst Biosciences Enter Definitive Merger Agreement

WINSTON-SALEM, N.C. & SAN FRANCISCO, CALIF. -- Targacept, Inc. (NASDAQ: TRGT) and Catalyst Biosciences, Inc., a privately held biopharmaceutical company, jointly announced recently that they have entered into a definitive agreement to merge the two companies. The combined entity, to be named Catalyst Biosciences, Inc., is expected to create a financially strong company to harness the catalytic power of engineered human proteases to develop next-generation biopharmaceuticals with improved efficacy and therapeutic index to treat major diseases.

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The combined company, with an anticipated NASDAQ listing with the symbol CBIO, will have:

    A pipeline of protease therapeutics including PF-05280602 (formerly CB 813d), an engineered Factor VIIa (FVIIa) drug candidate that successfully completed a Phase 1 clinical trial and is being developed by Pfizer Inc. under license from Catalyst. PF-05280602 is designed to address an established approximately $1.5 billion hemophilia market by potentially enabling lower and fewer doses of an engineered Factor VIIa to control bleeding episodes and to potentially achieve effective prophylaxis in hemophilia inhibitor patients;
    Four additional promising drug candidates including: an improved Factor IX (FIX) for hemophilia B, an engineered Factor Xa (FXa) 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;
    News flow from drug development programs including Phase 1 data from the Pfizer-sponsored Factor VIIa program in severe hemophilia A & B and inhibitor patients;
    Immediate committed capital to the combined entity expected to include cash and cash equivalents of approximately $40 million at the closing of the transaction; and
    For existing Targacept shareholders, a special dividend prior to closing of approximately $20 million in cash and redeemable convertible notes with an aggregate principal amount of $37 million, which provides the potential for future capital investment in the company.

“This merger establishes a well-capitalized public company with resources to advance our unique protease-based product candidates through multiple future value inflection points,” said Nassim Usman, Ph.D., Chief Executive Officer of Catalyst. “In addition to our Factor VIIa program we will also have sufficient resources to initiate and complete a planned proof-of-concept study of CB 2679d, a next-generation Factor IX for hemophilia B patients, as well as further develop of our novel Factor Xa variant and our anti-complement programs.”

As part of the proposed transaction, the stockholders of Catalyst will initially own approximately 65 percent of the combined company, and the operations of both companies will be combined. Targacept cash remaining in the combined company will be $35 million, along with an anticipated $5 million of cash from Catalyst. In addition to retaining common stock representing approximately 35 percent of the combined company, current Targacept stockholders will receive a dividend of an aggregate of $37 million in non-interest bearing redeemable convertible notes and approximately $20 million in cash. The notes will be convertible into the combined company’s common stock at any time within two years after closing at the noteholders’ discretion. The conversion price of the notes is equal to $1.31, which represents 130 percent of the negotiated per-share value of Targacept’s assets following the anticipated distribution of the dividend of approximately $20 million in cash and $37 million principal amount of the notes. The conversion price is subject to adjustment in the event of a reverse stock split of the combined company’s common stock. The combined company will establish an escrow fund of cash sufficient for repayment of any notes that are not converted to stock during the two-year conversion period. If the redeemable convertible notes are fully converted, an additional $37 million held in escrow would be made available to the combined company within the first two years following closing, and on a pro-forma basis as of the anticipated closing date, the former Targacept stockholders would own approximately 49 percent of the outstanding capital of the combined company. The initial ownership percentages are subject to adjustment based on Catalyst’s cash balance at closing.

“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 Dr. Stephen A. Hill, President and Chief Executive Officer of Targacept. “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 boards of directors of both companies have unanimously approved the proposed merger, which is subject to customary closing conditions, including approval by the stockholders of each of Targacept and Catalyst. Voting agreements supporting the transaction have been signed by shareholders representing approximately 43 percent of Targacept’s common stock and 84 percent of Catalyst’s voting stock.

About the Combined Company
If the merger is consummated, Targacept’s name will be changed to Catalyst Biosciences, Inc., and Targacept will apply to change its ticker symbol on the NASDAQ Global Select Market to “CBIO”. Catalyst’s CEO Nassim Usman, Ph.D., will become the President and CEO of the combined company and the other Catalyst executive officers will assume their respective positions in the combined company, with select Targacept executives remaining involved on a transitional basis.

The seven-member Board of Directors of the combined company will be comprised of current Catalyst directors Dr. Harold E. Selick, Dr. Jeff Himawan, and Augustine Lawlor, as well as Dr. Usman, and current Targacept directors John P. Richard, Errol B. DeSouza, Ph.D. and Dr. Hill. Dr. Selick will serve as the new chairman of the board.

Additional Information About the Transaction
Current Targacept stockholders will retain rights to any monetization of Targacept’s neuronal nicotinic receptor (NNR) assets for a period of two years following the closing, to the extent these assets are not sold or otherwise disposed of prior to the closing.

Stifel, Nicolaus & Company, Incorporated is acting as exclusive financial advisor to Targacept and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. is serving as its legal counsel. Morrison & Foerster LLP is serving as legal counsel for Catalyst.

About Hemophilia & Hemostasis
Hemophilia is a rare and serious bleeding disorder that results from a genetic or an acquired deficiency of a protein required for normal blood coagulation, such as Factor VIII (hemophilia A) or Factor IX (hemophilia B). The worldwide prevalence of hemophilia is estimated at approximately 300,000 patients and, according to the National Hemophilia Foundation, approximately 75 percent of patients receive inadequate treatment of their disorder. Hemophilia patients suffer from spontaneous bleeding episodes that often occur repeatedly in “target joints”, especially the knees, ankles and elbows. This internal bleeding may, in some cases, become life threatening and frequently damages joints, organs, and tissues over time.

Hemophilia A: A significant number of hemophilia A patients develop neutralizing antibodies (“inhibitors”) against factor VIII and become refractory to standard factor replacement treatment. One of the treatment options for these patients is Factor VIIa, a protease that can both initiate blood clotting and, at high doses, “bypass” the factor VIII-dependent step in coagulation. Hemophilia A is four times as common as Hemophilia B.

Hemophilia B: Hemophilia B patients can also develop neutralizing antibodies and become refractory to factor replacement therapy. Factor VIIa treatment is also effective in treating these patients.

Currently, Factor VIIa therapy can, in some patients, require multiple injections to treat a bleeding episode due to Factor VIIa's limited potency as a “bypass” agent and short half-life. Current worldwide sales of Factor VIIa are approximately $1.5 billion annually. Catalyst has created a FVIIa with pre-clinical properties that suggest increased potency and duration than currently approved FVIIa, NovoSeven®. Similarly, Catalyst’s other coagulation factors, FIX and FXa have also been engineered to be more potent, longer acting, and safer than other approved factors or those in clinical trials.

About Anti-Complement
Like blood coagulation, the human complement system is a complex series of biological processes and cascades that are regulated naturally by proteases. Disruption of the complement system, either by genetic mutations or inappropriate activation, as occurs in certain transplant and myocardial surgeries and ocular diseases such as age-related macular degeneration (AMD), can produce substantial inflammatory tissue damage, that causes significant pathology. Catalyst's lead complement programs are directed at complement factor C3, an attractive pharmaceutical intervention point as C3 is at the nexus of the complement system and common to all three pathways of activation.

Conference Call Information
Dr. Hill and Dr. Usman will host a conference call and webcast to discuss the proposed merger on March 6, 2015, at 8:30 a.m. Eastern Time (5:30 a.m. Pacific Time).

To access the live conference call, please dial +1(800) 299-8538 from the U.S. and Canada or +1(617) 786-2902 internationally, and use the passcode 88076227.

To access the live and subsequently archived webcast of the conference call, go to the Investor Relations section of Targacept’s website at website at www.targacept.com. A replay of the webcast will be available on the Company’s website until close of business on April 3, 2015.

About Catalyst
Catalyst Biosciences is developing the next generation of biopharmaceuticals by engineering proteases in the fields of hemostasis and anti-complement. Catalyst is focusing its product development efforts on drug candidates for hemophilia, age‐related macular degeneration and inflammation. To date, Catalyst has established multiple discovery research and product development agreements, currently including Pfizer and ISU Abxis (Seoul, Korea). Catalyst is privately held and backed by leading venture firms including Essex Woodlands Health Ventures, HealthCare Ventures, Johnson & Johnson Innovation – JJDC, Inc., Morgenthaler Ventures, Rosetta Capital and Sofinnova Ventures. For more information, please visit www.catbio.com.

About Targacept
Targacept has historically focused on developing NNR Therapeutics™ to treat patients suffering from serious nervous system and gastrointestinal/genitourinary diseases and disorders. Targacept is dedicated to building health and restoring independence for patients. For more information, please visit www.targacept.com.