WINSTON SALEM, NC (
TheStreet) -- Why is mutual fund giant Fidelity and a well-known healthcare hedge fund buying more
(TRGT - Get Report) despite the company's miserable drug development track record?
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 - Get Report), Elan (ELN), Eli Lilly (LLY - Get Report) and Johnson & Johnson (JNJ - Get Report) 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.
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