Targacept (TRGT) Can Fail and Yet Still Win for Investors - Barron's

April 18, 2012 12:00 PM EDT
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Targacept (Nasdaq: TRGT) shares are moving higher Wednesday following a bullish report from Barron's which said the stock could triple.

The pharma company tends to partner with drug giants in an effort to develop treatments for complications ranging from diabetes to depression. Amid the efforts, bringing most of the products in development has proved a bit of a challenge for Targacept -- something which would explain why shares are down 80 percent from its 52-week high of $25.25 hit last May.

Despite the challenges, Barron's is quick to point out Targacept keeps about $8 per share in cash on the books (about $258 million in cash and equivalents).

But cash can't stop failure, and there have been at least two notable ones in the recent months. TC-5214, its proposed treatment for depression developed in collaboration with AstraZeneca (NYSE: AZN), was terminated last month. In addition, its proposed asthma treatment, TC-6987, also failed as a cure for diabetes, though the firm is still pursuing it for asthma.

One analyst at MKM Partners thinks Targacept could hit $13 in the next 12 months based on a sum-of-parts analysis. The analyst said Targacept gets most of its revenue stream from licensing and has enough cash to fund development programs through the end of 2014.

Targacept has at least one thing going for it that most other biopharmas can't claim: multiple trials for multiple drugs with multiple indications. For example, TC-5619 is a proposed treatment for ADHD which might also be used in schizophrenia. Targacept's TC-6987 might also be indicated for arthritis and Crohn's disease. The potential markets are $150 million and $50 million for each, respectively.

Even if all of Targacept's trials fail, its cash balance makes it an attractive long-term play for many investors, speculative or not. No prescription needed.

Shares are up 1.6 percent Wednesday.

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