By Matthew Willett

Targacept Inc. took its place as the newest company in the biotech sector Thursday as parent R.J. Reynolds Tobacco Co. spun it off following a $30.4 million equity financing.

The investment was led by EuclidSR Partners, a venture capital fund. Other investors included Burrill & Co., of San Francisco; Advent Venture Partners, of the UK; Longleaf Venture Fund, of Winston-Salem, N.C.; and French venture firms Auriga Ventures, CDC Innovation Genavent and Societe Generale Asset Management Finance.

R.J. Reynolds will maintain a minority interest in the central nervous system disorder therapeutics company, holding 43 percent ownership, but will remain the largest single shareholder.

Targacept CEO Donald deBethizy said the company formed from technology originating in the late 1980s, when R.J. Reynolds sought to better understand nicotine's pharmacology and toxicology. What it found is that nicotine has some effect on central nervous system disorders through its interaction with nicotenic cholinergic receptors.

Those receptors, deBethizy said, located in both the central and peripheral nervous systems, play a major role in modulating the release of major neurotransmitters in the body.

"We had a lot of compounds and a lot of receptor targets, and we started patenting them and formed a pharmocology division to manage that," deBethizy said. "As time went on it was obvious to us that this had business and commercial abilities, and we invested in toxicology and safety studies of a lead compound, and actually took it into Phase I testing."

A partnership with Aventis Pharmaceuticals Inc. in 1998 led to the ongoing development of that compound for treatment of Alzheimer's and Parkinson's diseases.

"Our most advanced product is the Alzheimer's and Parkinson's treatment that we're working on in collaboration with Aventis," he said. "We're moving rapidly to take our best leads into the clinic for those two candidates, and we have one of our own, TC-2403, a compound that's very promising and has central nervous system and memory effects in animals and low side effects. We've taken that through Phase I testing, which was proof of concept."

Also in the preclinical research stage is a possible treatment for ulcerative colitis.

"We are in active discussions with potential partners. We're interested in partnering out in the ulcerative colitis area and possibly with compounds for depression," deBethizy said. "We're also interested in looking at a potential product for diagnostic imaging for Alzheimer's disease that's still in preclinical research."

The $30.4 million financing puts the company on solid financial footing, deBethizy said.

"We believe we have enough cash to fund preclinical and clinical development of our lead candidates for the foreseeable future, and we're focused on putting in an infrastructure," deBethizy said. "We'll double the number of world-class scientists we've got working with us within a year. We've got 25 now and we'd like to have 50. We'll focus our efforts on preclinical and development programs, and we'll be hiring a vice president of finance and a vice president of clinical development to round out our strong management team."

He said the company expects to become a leader in the area of nicotinic receptors. Sibia Neurosciences Inc. (now part of Merck & Co. Inc.), as well as Abbott Laboratories, are among the major competitors in that field.

"I think we have a leadership position in developing a new class of drugs because we have more patents than anyone, and, I feel, a unique ability to consistently produce beneficial effects with low side effects."

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