Targacept Inc. (TRGT, Financial) filed Quarterly Report for the period ended 2009-09-30.
TARGACEPT INC is a clinical-stage biopharmaceutical company that discovers and develops NNR Therapeutics a new class of drugs for the treatment of central nervous system diseases and disorders. Targacept's product candidates selectively modulate neuronal nicotinic receptors that serve as key regulators of the nervous system to promote therapeutic effects and limit adverse side effects. Targacept has product candidates in development for Alzheimer's disease cognitive dysfunction in schizophrenia pain and depression as well as multiple preclinical programs. Targacept also has a cognition-focused collaboration with AstraZeneca and a strategic alliance with GlaxoSmithKline. Targacept Inc. has a market cap of $494.7 million; its shares were traded at around $19.73 with and P/S ratio of 24.6.
We acquired rights to Inversine in August 2002. Inversine is our only product approved for marketing by the U.S. Food and Drug Administration, or FDA. Inversine is approved for the management of moderately severe to severe essential hypertension and in uncomplicated cases of malignant hypertension, which are high blood pressure disorders. Sales of Inversine generated net revenue of $118,000 and $164,000 for the three months ended September 30, 2009 and 2008, respectively, and $473,000 and $551,000 for the nine months ended September 30, 2009 and 2008, respectively. We instituted a price increase of 19% for Inversine at the beginning of 2009 and a price increase of 62% for Inversine at the beginning of 2008 to help offset the impact of increased cost of product sales resulting primarily from FDA product and establishment fees. We experienced decreased sales volume during 2008 and through September 30, 2009. Product sales of Inversine resulted in a net loss of $218,000 for the nine months ended September 30, 2009 and $31,000 for the year ended December 31, 2008. As a result of increased FDA fees and declining prescriptions for Inversine in recent years, we discontinued Inversine effective as of September 30, 2009. Because we have no further plans to manufacture Inversine, we recorded charges of $77,000 related to the impairment of our remaining raw materials and finished goods inventory to cost of product sales for the nine months ended September 30, 2009. The discontinuation of Inversine did not have a material impact on our cash flows or results of operations for the periods presented, and we do not expect the discontinuation of Inversine to have a material impact on our cash flows or results of operations in future periods.
From time to time we seek and are awarded grants or work to be performed under grants awarded to third-party collaborators from which we derive revenue. As of September 30, 2009, we are a named subcontractor under a grant awarded to The California Institute of Technology by the National Institute on Drug Abuse, or NIDA, part of the National Institutes of Health, to fund research on innovative NNR-based approaches to the development of therapies for smoking cessation and have received a grant from The Michael J. Fox Foundation for Parkinsons Research, or MJFF, to fund preclinical research involving the use of compounds that modulate NNRs to address Levodopa-induced abnormal involuntary movements, known as dyskinesias. We expect to receive an aggregate of $641,000 over a one-year period that began in August 2009 in connection with the MJFF grant. We also expect to receive approximately $1.1 million in the aggregate over a five-year period that began in July 2006 in connection with the NIDA grant. Funding for awards under federal grant programs is subject to the availability of funds as determined annually in the federal appropriations process.
We generated net income for the third quarter ended September 30, 2009 and for the fourth quarter and year ended December 31, 2006, in each case primarily due to the achievement in each period of a single milestone event related to AZD3480 under our agreement with AstraZeneca. We have incurred net operating losses for each other period since inception and consequently have not paid federal, state or foreign income taxes, net of refundable credits, in any period. As of September 30, 2009, we had net operating loss carryforwards of $127.9 million for federal income tax purposes and $127.8 million for state income tax purposes. The federal net operating loss carryforwards begin to expire in 2020. The state net operating loss carryforwards begin to expire in 2015. We also had $6.0 million in research and development federal income tax credits as of September 30, 2009. The federal research and development tax credits begin to expire in 2023. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. When an ownership change, as defined by Section 382, occurs, an annual limitation is imposed on a companys use of net operating loss and credit carryforwards attributable to periods before the change. As a result of a series of stock issuances, we had such an ownership change in November 2002. Consequently, an annual limitation is imposed on our use of net operating loss and credit carryforwards that are attributable to periods before November 2002 and a portion of the net operating loss carryforwards described above may potentially not be usable by us. We could experience additional ownership changes in the future. For financial reporting purposes, we have recorded a valuation allowance to fully offset the deferred tax asset related to these carryforwards because realization of the benefit is uncertain.
Net operating revenues for the three months ended September 30, 2009 increased by $8.5 million as compared to the three months ended September 30, 2008. The higher net operating revenues for the 2009 period as compared to the 2008 period were primarily attributable to an increase of $9.8 million in milestones and license fees from collaborations revenue and was partially offset by a decrease of $1.3 million in collaboration research and development revenue. The increase in milestones and license fees from collaborations revenue for the 2009 period reflects a $10.0 million milestone payment by AstraZeneca based on the achievement of the objective in the completed Phase 2 trial of AZD3480 in adults with ADHD. The increase in milestones and license fees from collaborations revenue was partially offset by our recognition of less deferred revenue for the 2009 period as a result of an extension of the estimated development period for AZD3480 and an extension of the estimated development period for TC-5619 to reach Phase 2 clinical proof of concept. The extent to which we may achieve milestone events under our strategic alliance and collaboration agreements in any particular period is uncertain. Accordingly, we expect the amount of our milestone-based revenue to vary from period to period.
the 2008 period associated with clinical trials of compounds that we have either ceased developing or are not currently progressing, partially offset by higher costs for the 2009 period associated with the conduct of the Phase 2b clinical trial of TC-5214 as an augmentation therapy for MDD. These lower research and development expenses were partially offset by an increase of $1.4 million in costs incurred for third-party research and development services in connection with our preclinical programs, primarily in therapeutic focus areas of our alliance with GlaxoSmithKline, to $4.7 million for the 2009 period, from $3.3 million for the 2008 period.
Read the The complete ReportTRGT is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
TARGACEPT INC is a clinical-stage biopharmaceutical company that discovers and develops NNR Therapeutics a new class of drugs for the treatment of central nervous system diseases and disorders. Targacept's product candidates selectively modulate neuronal nicotinic receptors that serve as key regulators of the nervous system to promote therapeutic effects and limit adverse side effects. Targacept has product candidates in development for Alzheimer's disease cognitive dysfunction in schizophrenia pain and depression as well as multiple preclinical programs. Targacept also has a cognition-focused collaboration with AstraZeneca and a strategic alliance with GlaxoSmithKline. Targacept Inc. has a market cap of $494.7 million; its shares were traded at around $19.73 with and P/S ratio of 24.6.
Highlight of Business Operations:
As of September 30, 2009, we had received $44.4 million in aggregate upfront fees and milestone payments under our collaboration agreement with AstraZeneca and had recognized an additional $25.0 million in collaboration research and development revenue for research services that we provided in the preclinical research collaboration that we are conducting with AstraZeneca under the agreement. As of September 30, 2009, we had also received $45.0 million in aggregate payments under our alliance agreement with GlaxoSmithKline. We initially deferred recognition of $41.5 million of the aggregate amounts received from AstraZeneca and GlaxoSmithKline and are recognizing such amounts into revenue over the periods discussed in Note 2 and Note 4 to our unaudited financial statements included in this quarterly report. As of September 30, 2009, we had $25.9 million of these deferred amounts remaining to be recognized in future periods.We acquired rights to Inversine in August 2002. Inversine is our only product approved for marketing by the U.S. Food and Drug Administration, or FDA. Inversine is approved for the management of moderately severe to severe essential hypertension and in uncomplicated cases of malignant hypertension, which are high blood pressure disorders. Sales of Inversine generated net revenue of $118,000 and $164,000 for the three months ended September 30, 2009 and 2008, respectively, and $473,000 and $551,000 for the nine months ended September 30, 2009 and 2008, respectively. We instituted a price increase of 19% for Inversine at the beginning of 2009 and a price increase of 62% for Inversine at the beginning of 2008 to help offset the impact of increased cost of product sales resulting primarily from FDA product and establishment fees. We experienced decreased sales volume during 2008 and through September 30, 2009. Product sales of Inversine resulted in a net loss of $218,000 for the nine months ended September 30, 2009 and $31,000 for the year ended December 31, 2008. As a result of increased FDA fees and declining prescriptions for Inversine in recent years, we discontinued Inversine effective as of September 30, 2009. Because we have no further plans to manufacture Inversine, we recorded charges of $77,000 related to the impairment of our remaining raw materials and finished goods inventory to cost of product sales for the nine months ended September 30, 2009. The discontinuation of Inversine did not have a material impact on our cash flows or results of operations for the periods presented, and we do not expect the discontinuation of Inversine to have a material impact on our cash flows or results of operations in future periods.
From time to time we seek and are awarded grants or work to be performed under grants awarded to third-party collaborators from which we derive revenue. As of September 30, 2009, we are a named subcontractor under a grant awarded to The California Institute of Technology by the National Institute on Drug Abuse, or NIDA, part of the National Institutes of Health, to fund research on innovative NNR-based approaches to the development of therapies for smoking cessation and have received a grant from The Michael J. Fox Foundation for Parkinsons Research, or MJFF, to fund preclinical research involving the use of compounds that modulate NNRs to address Levodopa-induced abnormal involuntary movements, known as dyskinesias. We expect to receive an aggregate of $641,000 over a one-year period that began in August 2009 in connection with the MJFF grant. We also expect to receive approximately $1.1 million in the aggregate over a five-year period that began in July 2006 in connection with the NIDA grant. Funding for awards under federal grant programs is subject to the availability of funds as determined annually in the federal appropriations process.
We generated net income for the third quarter ended September 30, 2009 and for the fourth quarter and year ended December 31, 2006, in each case primarily due to the achievement in each period of a single milestone event related to AZD3480 under our agreement with AstraZeneca. We have incurred net operating losses for each other period since inception and consequently have not paid federal, state or foreign income taxes, net of refundable credits, in any period. As of September 30, 2009, we had net operating loss carryforwards of $127.9 million for federal income tax purposes and $127.8 million for state income tax purposes. The federal net operating loss carryforwards begin to expire in 2020. The state net operating loss carryforwards begin to expire in 2015. We also had $6.0 million in research and development federal income tax credits as of September 30, 2009. The federal research and development tax credits begin to expire in 2023. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. When an ownership change, as defined by Section 382, occurs, an annual limitation is imposed on a companys use of net operating loss and credit carryforwards attributable to periods before the change. As a result of a series of stock issuances, we had such an ownership change in November 2002. Consequently, an annual limitation is imposed on our use of net operating loss and credit carryforwards that are attributable to periods before November 2002 and a portion of the net operating loss carryforwards described above may potentially not be usable by us. We could experience additional ownership changes in the future. For financial reporting purposes, we have recorded a valuation allowance to fully offset the deferred tax asset related to these carryforwards because realization of the benefit is uncertain.
Net operating revenues for the three months ended September 30, 2009 increased by $8.5 million as compared to the three months ended September 30, 2008. The higher net operating revenues for the 2009 period as compared to the 2008 period were primarily attributable to an increase of $9.8 million in milestones and license fees from collaborations revenue and was partially offset by a decrease of $1.3 million in collaboration research and development revenue. The increase in milestones and license fees from collaborations revenue for the 2009 period reflects a $10.0 million milestone payment by AstraZeneca based on the achievement of the objective in the completed Phase 2 trial of AZD3480 in adults with ADHD. The increase in milestones and license fees from collaborations revenue was partially offset by our recognition of less deferred revenue for the 2009 period as a result of an extension of the estimated development period for AZD3480 and an extension of the estimated development period for TC-5619 to reach Phase 2 clinical proof of concept. The extent to which we may achieve milestone events under our strategic alliance and collaboration agreements in any particular period is uncertain. Accordingly, we expect the amount of our milestone-based revenue to vary from period to period.
the 2008 period associated with clinical trials of compounds that we have either ceased developing or are not currently progressing, partially offset by higher costs for the 2009 period associated with the conduct of the Phase 2b clinical trial of TC-5214 as an augmentation therapy for MDD. These lower research and development expenses were partially offset by an increase of $1.4 million in costs incurred for third-party research and development services in connection with our preclinical programs, primarily in therapeutic focus areas of our alliance with GlaxoSmithKline, to $4.7 million for the 2009 period, from $3.3 million for the 2008 period.
Read the The complete ReportTRGT is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
