This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Targacept Secret That Wall Street Doesn't Want You to Know About

Stocks in this article: TRGT ELN PFE LLY JNJ

WINSTON SALEM, NC ( TheStreet) -- Why is mutual fund giant Fidelity and a well-known healthcare hedge fund buying more Targacept (TRGT) despite the company's miserable drug development track record? Yet another of Targacept's clinical trials ended in failure Monday.

The answer: Alzheimer's disease. More specifically, there's a drug sitting in Targacept's pipeline that could one day treat Alzheimer's and maybe schizophrenia, too. Billion-dollar plus markets, both.

Targacept shares trade at $4.31 even though the company has $205 million in cash on hand, worth roughly $6 per share. At that steep discount to cash value, Targacept shareholders get the Alzheimer's/schizophrenia drug, known as TC-5619, essentially for free.

Fidelity Investments owns 5 million shares of Targacept, including 1.2 million shares acquired in the second quarter, according to CapitalIQ. BVF Partners, run by hedge fund manager Mark Lampert, disclosed a 3.6 million-share ownership stake in Targacept on Sept. 10. Since May, Lampert has doubled the size of his position in Targacept, according to regulatory filings.

At this point, you're shaking your head, or laughing out loud. Alzheimer's drugs, no matter how promising, all fail in the end. Pfizer (PFE), Elan (ELN), Eli Lilly (LLY) and Johnson & Johnson (JNJ) have taught us that lesson well. And Targacept? The company whose depression drug blew up because it ran clinical trials in India, sending shares plummeting 80% in 2011 and another 23% this year? C'mon. . .

All true, but here's the interesting bit about TC-5619: The drug's mechanism by which it's supposed to improve cognition is shared by another drug owned by privately held EnVivo Pharmaceuticals. Better yet, the EnVivo drug, EVP-6124, has already posted positive data in both Alzheimer's and schizophrenia.

Most recently In July, EnVivo announced positive results from a six-month, double blind, phase IIb study that evaluated EVP-6124 in patients with mild to moderate Alzheimer's. Treatment with EVP-6124 resulted in statistically significant improvements in cognition and clinical function -- hitting on both of the study's co-primary endpoints. Slides summarizing the EVP-6124 Alzheimer's data can be downloaded here.

And who is the sole investor backing EnVivo Pharmaceuticals? Fidelity Biosciences, the healthcare venture capital arm of Fidelity Investments.

It could be coincidence that Fidelity and its VC arm both happen to be investing heavily in two separate drugs targeting Alzheimer's that work in similar ways.

Or, Fidelity is bankrolling EnVivo and buying shares of Targacept for a reason.

Those EVP-6124 data turned heads at the recent Alzheimer's Association International Conference, and now EnVivo is advancing the drug into a phase III study. It didn't take long for that buzz to reach Wall Street. Since Fidelity has EnVivo walled off, institutional investors looking for a similar drug found Targacept and TC-5619.

Targacept shares are trading below cash, so obviously, the confidence level in TC-5619 is not high. Nor should it be. On Monday, the drug failed a mid-stage study in adults with attention deficit/hyperactivity disorder.

But Targacept is conducting another phase II study of TC-5619 in schizophrenia patients. Results are expected in the middle of 2013. If positive, Targacept shares aren't likely to be trading below cash any longer, especially if investors connect the dots and start drawing parallels between TC-5619 and EVP-6124.

--Written by Adam Feuerstein in Boston.

>To contact the writer of this article, click here: Adam Feuerstein.

>To follow the writer on Twitter, go to

>To submit a news tip, send an email to:

Follow TheStreet on Twitter and become a fan on Facebook.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs