Biopharm Companies Targacept, Catalyst Biosciences Agree to Merge

The biopharmaceutical companies, Targacept, Inc., based in Winston-Salem, North Carolina, and Catalyst Biosciences, Inc., based in South San Francisco, California, have agreed to merge in a reverse merger,The combined entity, to be named Catalyst Biosciences, Inc., will focus on treatments to treat hemophilia, which includes a drug candidate licensed to Pfizer.

The combined company will have a pipeline of protease therapeutics, including PF-05280602, an engineered Factor VIIa (FVIIa) Phase I drug candidate being developed by Pfizer Inc. under license from Catalyst. PF-05280602 is designed to enable lower and fewer doses of an engineered Factor VIIa to control bleeding episodes and to potentially achieve effective prophylaxis in hemophilia inhibitor patients; The pipeline also includes four additional drug candidates : 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.

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 Targacept and Catalyst. Voting agreements supporting the transaction have been signed by shareholders representing approximately 43% of Targacept's common stock and 84% of Catalyst's voting stock. Current Targacept stockholders will retain rights to any monetization of Targacept's neuronal nicotinic receptor 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.

If the merger is consummated, Targacept's name will be changed to Catalyst Biosciences, Inc.,Catalyst's CEO Nassim Usman, PhD, 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, PhD.,and Dr. Hill. Dr. Selick will serve as the new chairman of the board.

As part of the proposed transaction, the stockholders of Catalyst will initially own approximately 65% 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% 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% 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% the outstanding capital of the combined company. The initial ownership percentages are subject to adjustment based on Catalyst's cash balance at closing.

Source: Targacept

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