Targacept Inc.’s 15-year run as an independent company ended Thursday much as it began — tying its future to the hope of a biopharmaceutical drug breakthrough.

The Winston-Salem company has been acquired by Catalyst Biosciences Inc. of San Francisco, the culmination of Targacept’s inability to develop promising drug compounds into viable treatments for depression, Alzheimer’s disease, schizophrenia and adult deficit hyperactivity disorder.

Completion of the sale came two days after Targacept shareholders approved the deal and a 1-for-7 reverse stock split. The combined company has taken the Catalyst name and assumed Targacept’s stock listing under the symbol CBIO.

Targacept is shutting down its Winston-Salem operation, where it had just 10 employees as of June 30, compared with 144 in June 2012.

“We have a handful of folks helping to close out the Winston-Salem facility who are officially Catalyst employees now, but only for a few weeks until we finally move out of the building,” Stephen Hill, Targacept’s now-former chief executive and president, said Friday.

Hill has been named to Catalyst’s board of directors. He will be paid $1.67 million, including $1.16 million in cash, because his job was terminated as part of a change in control of ownership. Shareholders approved golden parachute plans for the remaining Targacept executives.

Targacept brought $35 million in net cash to the merger, which will be focused on Catalyst’s clinical development of CB 813d, its coagulation Factor VIIa.

Targacept shareholders own 42 percent of the shares, up from the 35 percent initially proposed. The shareholders eventually could have an even bigger holding — a 57 percent capital stake, up from the 49 percent originally proposed.

Catalyst said the drug compound has demonstrated initial safety and pharmacologic activity to support the start of Phase 2 clinical development in 2016 for the potential treatment of bleeding in hemophilia patients with inhibitors.

“With the completion of the merger, we are now well funded,” Nassim Usman, Catalyst’s president and chief executive, said in a statement. “Catalyst is at an exciting phase of growth as we pursue multiple, clinically relevant opportunities based on engineering human proteases to improve patients’ lives.”

The deal has had several twists, foremost the June 1 ending of the licensing agreement between Catalyst and Pfizer Inc. The rights to product development in the agreement reverted to Catalyst.

On June 24, Catalyst said it had gained positive results from a Phase I clinical trial for its coagulation Factor VII as a potential treatment for hemophilia A and B patients. Catalyst plans to initiate a clinical efficacy trial in hemophilia A and B “inhibitor” patients in 2016.

What makes the positive clinical trial results pivotal to Catalyst — and the merger — is that one key to Targacept’s willingness to sell, as well as to put cash into the transaction, was Catalyst’s partnership with Pfizer and wholly owned subsidiary Wyeth Pharmaceuticals.

Even though Targacept failed to crack the code for medicinal use of neuronal nicotinic receptors despite great promise, local officials said the company’s legacy will be one of giving the community a hands-on example of the high-risk, high-reward industry.

“I admire the work of all at Targacept who tried so hard to bring their concepts and technologies into clinical practice for the benefit of patients,” said Eric Tomlinson, president of Wake Forest Innovation Quarter.

The Targacept drug compound TC-5214 was touted as a potential billion-dollar discovery as an add-on to existing antidepressants. But it failed in four Phase 3 clinical trials conducted in 2011 and 2012.

“It was my vision and my hope that Targacept would see at least one positive clinical trial result,” Hill said. “The clinical trials were well done. We were just disappointed that none of them produced sufficient results to go to the marketplace with.”

Targacept announced in July 2014 it was moving beyond its core nicotinic research. Tomlinson said many former Targacept employees have found work with other local life-science companies or launched startups.

Targacept “reflects the fragility of pioneering startup biotechnology companies,” Tomlinson said. “Its extraordinary results in early animal and limited clinical studies did not carry through to larger patient populations. Their scientific concept and clinical activities were both high class, though it seems that for several of their candidate drugs interactions with the biological receptors they were targeting did not have sufficient power to cause a sufficiently robust pharmacological, i.e., therapeutic effect.”

Nancy Johnston, executive director of the Triad office of the N.C. Biotechnology Center, said Targacept's legacy is bringing credibility to the Triad sector in its early stages.

"The Triad’s life science industry has grown up with Targacept," Johnston said. "During that time, we have worked closely with Targacept’s team to build a community that will live on after this acquisition.

Many former Targacept employees continue to be a part of this community, starting companies or contributing their expertise to other firms. The downside of a strong entrepreneurial environment is that not all new ventures succeed.

"But the activity and the knowledge that come from that experience will stay with the community and sustain it for years to come," she said.

rcraver@wsjournal.com (336) 727-7376 @rcraverWSJ

rcraver@wsjournal.com

(336) 727-7376

@rcraverWSJ

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