RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Targacept because these risks may also affect the combined company—these risks can be found in Targacept’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled “Where You Can Find More Information” beginning on page 320.

Risks Related to the Merger

The market price of Targacept common stock following the completion of the merger may decline as a result of the transaction.

The market price of Targacept common stock may decline as a result of the merger for a number of reasons, including if:

Targacept and Catalyst equityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the merger.

After the completion of the merger, the current stockholders of Targacept and Catalyst will own a significantly smaller percentage of the combined company than their ownership of their respective companies prior to the merger. At the effective time of the merger, Targacept equityholders will collectively own approximately 42% of the combined company, and Catalyst equityholders will collectively own up to approximately 58% of the combined company, based on shares of Catalyst and Targacept outstanding as of May 15, 2015, and assuming Catalyst’s net cash at closing meets the target set forth in the Merger Agreement. In addition, the seven-member Board of Directors of the combined company will initially be comprised of four current Catalyst directors and three current Targacept directors. Consequently, stockholders of Targacept and Catalyst will be able to exercise less influence over the management and policies of the combined company than they currently exercise over the management and policies of their respective companies.

Targacept and Catalyst stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined company is unable to realize the full strategic and financial benefits anticipated from the merger, Targacept and Catalyst stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

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Pfizer’s termination of its research and license agreement with Catalyst has delayed the originally anticipated schedule for the closing of the merger from the second quarter of 2015 to the third quarter of 2015. This delay will result in additional operating costs that will reduce the amount of the originally anticipated cash dividend to Targacept’s stockholders in connection with the merger. The Pfizer termination may have other effects on the merger and the combined company’s shareholders.

As Targacept reported on April 6, 2015, Catalyst notified Targacept on April 1, 2015, that Pfizer would be exercising its right to terminate in its entirety the June 29, 2009, research and license agreement between Catalyst and Wyeth LLC (a wholly owned subsidiary of Pfizer), which governs the development and commercialization of Catalyst’s leading human Factor VIIa product candidate for the treatment of hemophilia and surgical bleeding indications, known as CB 813d/PF-05280602. On April 2, 2015, Pfizer provided Catalyst with its formal written notice of termination of the research and license agreement.

This development will delay the anticipated closing date of the merger from the second quarter of 2015 to the third quarter of 2015. Targacept had originally anticipated a cash dividend to its shareholders, prior to the closing of the merger, of approximately $20.0 million. Given the delay in the closing date of the merger and associated operating costs incurred in the interim, the amount of this cash dividend is now likely to be approximately $19.0 million. This development may also require the combined company to raise additional financing in the capital markets sooner than originally planned, resulting in additional dilution to the combined company’s stockholders.

Failure to complete the merger may adversely affect the common stock price of Targacept and future business and operations of Targacept and Catalyst.

If the merger is not completed, Targacept and Catalyst are subject to the following risks:

In addition, if the Merger Agreement is terminated and the board of directors of Targacept or Catalyst determines to seek another business combination, there can be no assurance that Targacept or Catalyst will be able to find a transaction that is superior or equal in value to the merger.

Targacept and Catalyst may fail to realize the anticipated benefits of the merger.

The success of the merger will depend on, among other things, the combined company’s ability to achieve its business objectives, including the development of its product candidates. If the combined company is not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

Targacept and Catalyst have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing business or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to comply with reporting obligations as a public company, to satisfy our obligations

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to third parties or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management’s attention and resources. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the merger could have an adverse effect on our business and the results of our operations. Such an adverse effect on our business may impact the value of the shares of the combined company’s common stock after the completion of the merger.

In addition, Catalyst could be materially adversely affected prior to the closing of the merger, which could have a material adverse effect on the combined company if Targacept is required to complete the merger. For example, Targacept is required under the Merger Agreement to complete the merger despite any changes in general economic or political conditions or the capital or securities markets in general to the extent they do not disproportionately affect Catalyst; any changes in or affecting the industries in which Catalyst operates, to the extent they do not disproportionately affect Catalyst; any changes, effects or circumstances resulting from the announcement or pendency of the Merger Agreement or the completion of the contemplated transactions or compliance with the terms of the Merger Agreement; any changes in laws or applicable accounting principles, or interpretations thereof; and the commencement, continuation or escalation of war, terrorism or hostilities, or natural disasters or political events. If any such adverse changes occur and the merger is still completed, Targacept’s stock price may suffer. This in turn may reduce the value of the merger to the stockholders of Targacept.

During the pendency of the merger, neither Targacept nor Catalyst may be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their businesses.

Covenants in the Merger Agreement generally prohibit Targacept and Catalyst from entering into certain extraordinary transactions with any third-party, including mergers, purchases or sales of assets, or other business combinations, subject to certain exceptions relating to fiduciary duties, or from completing other transactions that are not in the ordinary course of business pending completion of the merger, including transactions that may be favorable to the companies or their stockholders. As a result, if the merger is not completed, each company’s stockholders may be adversely impacted by its inability to pursue other beneficial opportunities during the pendency of the merger.

Provisions of the Merger Agreement may discourage third parties from submitting alternative acquisition proposals, including proposals that may be superior to the merger.

The terms of the Merger Agreement prohibit Targacept and Catalyst from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when its board of directors determines in good faith that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior acquisition proposal, and that failure to pursue such proposal would be considered a breach of the board’s fiduciary duties. If Targacept terminates the Merger Agreement because it enters into an alternative superior transaction, Targacept would be required to pay a termination fee of $3.22 million to Catalyst. Such termination fee may discourage third parties from submitting alternative takeover proposals to Targacept, and may cause the board of directors to be less inclined to recommend an alternative proposal.

The lack of a public market for Catalyst shares makes it difficult to determine the fair market value of Catalyst, and the merger consideration to be issued to Catalyst securityholders may exceed the actual value of Catalyst.

The outstanding capital stock of Catalyst is privately held and is not traded on any public market, which makes it difficult to determine the fair market value of Catalyst. There can be no assurances that the merger consideration to be issued to Catalyst securityholders will not exceed the actual value of Catalyst.

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If the redeemable convertible notes are redeemed for cash instead of converted for stock, the combined company may need to raise additional dilutive capital.

In connection with the merger, Targacept stockholders will receive a Pre-Closing Dividend, which consists in part of $37.0 million in aggregate principal amount of redeemable convertible notes. The notes will be convertible at any time within 30 months following the closing into shares of the combined company at a conversion price of $1.313 per share, which represents 130% of the negotiated per-share value of Targacept’s assets following the anticipated Pre-Closing Dividend. The combined company is expected to have a cash balance, exclusive of Targacept’s close-out costs, of approximately $77.0 million upon closing of the merger, including $37.0 million to be held in escrow for the benefit of the note holders and the combined company. If all of the notes are redeemed for cash or are repaid upon maturity and not converted into stock of the combined company, the approximately $37.0 million of cash required to satisfy the redemption will not be available to fund the ongoing operations of the combined company. Targacept cannot predict when or to what extent noteholders will elect to redeem or convert the principal under the notes, and decisions by noteholders by will be influenced by a variety of factors, including the trading price of the combined company’s common stock during the 30 months following the closing. If a substantial amount of the cash balance of the combined company is required to satisfy note redemptions, the combined company may need to raise additional capital in the future to fund operations sooner than it otherwise would. Additional capital required in the future may cause dilution of the stockholders of the combined company.

Targacept, Catalyst and the combined company will incur substantial transaction-related costs in connection with the merger .

Targacept and Catalyst have incurred, and expect to continue to incur, a number of non-recurring transaction-related costs associated with completing the merger and combining the two companies. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the operations of Targacept and Catalyst, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

A failure by Targacept to comply with the initial listing standards of the NASDAQ Global Select Market may subject its stock to delisting from the NASDAQ Global Select Market, which listing is a condition to the completion of the merger.

Targacept’s common stock is currently listed for trading on the NASDAQ Global Select Market. Immediately prior to the completion of the merger, Targacept will be required to meet the initial listing requirements to maintain the listing and continued trading of its shares on the NASDAQ Global Select Market. These initial listing requirements are more difficult to achieve than the continued listing requirements under which Targacept is now trading. Based on information currently available to Targacept, Targacept anticipates that it will be unable to meet the $4.00 minimum bid price initial listing requirement at the closing of the merger unless it effects a reverse stock split. If Targacept is unable to satisfy these requirements, NASDAQ may notify Targacept that its stock will be subject to delisting from the NASDAQ Global Select Market. It is a condition to Catalyst’s obligation to complete the merger that Targacept maintain the listing of its common stock on NASDAQ. In addition, oftentimes a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. Targacept believes that a reverse stock split will be in the best interest of the combined company and its stockholders and, accordingly, asks for its shareholders to approve a proposed reverse stock split as set forth elsewhere in this proxy statement/prospectus/information statement. However, Targacept cannot assure you that the implementation of the reverse stock split will have a positive impact on the price of its common stock.

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The combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not be sufficient to cover all costs and damages.

In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.

Risks Related to Targacept

If the merger is not completed, the Pre-Closing Dividend will not be distributed to Targacept stockholders.

Distribution of the Pre-Closing Dividend to the Targacept stockholders is contingent upon the completion of the merger. If the merger does not occur, Targacept will not distribute the Pre-Closing Dividend, and there is no assurance the Targacept board of directors will declare or distribute any dividends on the Targacept common stock in the future.

Targacept may not be able to complete the merger and may elect to pursue another strategic transaction similar to the merger, which may not occur on commercially reasonable terms or at all.

Targacept cannot assure you that it will be able to complete the merger in a timely manner or at all. The Merger Agreement is subject to many closing conditions and termination rights. Targacept’s assets currently consist primarily of cash, cash equivalents and marketable securities, and its listing on the NASDAQ Global Select Market. If Targacept does not complete the merger, its board of directors may elect to attempt to complete another strategic transaction similar to the merger. Such attempts will likely be costly and time consuming, and Targacept cannot make any assurances that a future strategic transaction will occur on commercially reasonable terms or at all.

If the merger is not completed, Targacept may elect to liquidate its remaining assets, and there can be no assurances as to the amount of cash available to distribute to stockholders after paying its debts and other obligations.

If Targacept does not complete the merger, the board of directors may elect to take the steps necessary to liquidate all remaining assets of Targacept in light of the risks of reestablishing an operating business. The process of liquidation may be lengthy and Targacept cannot make any assurances regarding the timing of completing such a process. In addition, Targacept would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurance as to the amount of available cash that will be available to distribute to stockholders after paying Targacept’s debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution.

Targacept’s recent clinical trials have resulted in significant clinical pipeline attrition. Targacept has closed its laboratory operations and no longer has the capability to discover new product candidates internally.

In 2012, Targacept completed two workforce reductions and closed its laboratory operations. Following these actions, Targacept does not have internal discovery and research capabilities to identify and discover new product candidates. Targacept has no current plan to resume discovery or research activities. Without internal discovery and research capability, Targacept will not be able to expand Targacept’s pipeline with internal candidates.

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A small number of Targacept’s stockholders beneficially own a substantial amount of Targacept’s common stock and have substantial control over Targacept; therefore, your ability to influence corporate matters may be limited.

Significant stockholders, acting together, have the ability to affect matters submitted to Targacept stockholders for approval, including the approval of significant transactions, like the merger. This concentration of ownership may have the effect of delaying, deferring or preventing a strategic transaction, even if such a transaction would benefit other stockholders.

Targacept’s ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of prior or future offerings of Targacept’s stock or other transactions.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, contain rules that limit the ability of a company that undergoes an ownership change, which is generally an increase in the ownership percentage of certain stockholders in the stock of a company by more than 50 percent over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change as defined by Section 382 occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long term tax exempt rate and the value of the company’s stock immediately before the ownership change. The merger may result in such an ownership change. If any of Targacept’s past or future transactions are determined to have caused one or more Section 382 ownership changes, Targacept generally would not be able to use Targacept’s pre-change loss or credit carryovers or certain built-in losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383, which may result in the expiration of a portion of Targacept’s tax attributes before utilization.

Targacept has a substantial accumulated deficit and expects to continue to incur losses for future periods.

As of March 31, 2015, Targacept had an accumulated deficit of $320.0 million. Targacept had a net loss of $6.8 million for the quarter ended March 31, 2015, and net losses of $32.6 million and $46.7 million for the years ended December 31, 2014 and 2013, respectively. Targacept’s losses for other periods have historically resulted principally from costs incurred in connection with Targacept’s research and development activities, including clinical trials, and from general and administrative expenses associated with Targacept’s operations. Targacept expects to continue to incur losses for future periods. As a result, following the completion of the merger, the combined company will need to generate significant revenues to achieve profitability in the future or, if Targacept does achieve profitability for any particular period, to sustain or grow Targacept’s profitability on a quarterly or annual basis.

Targacept derived a substantial portion of its revenue in past years from Targacept’s strategic alliances and collaborations, which have all terminated. Targacept does not currently have any source of product revenue.

If Targacept is unable to protect its intellectual property effectively, Targacept’s competitors may develop and market similar products and the value of its technology and its ability to monetize its NNRs and related assets, or NNR Assets, would be damaged.

Targacept depends significantly on its ability to obtain and maintain meaningful intellectual property protection for its product candidates, technology and know-how. Targacept generally seeks to protect its compounds and technologies by, among other methods, filing U.S. and foreign patent applications related to its proprietary technology that is important to the development of its business. Targacept files patent applications directed to its product candidates in an effort to establish intellectual property positions regarding new chemical entities, pharmaceutical compositions, formulations and uses in the treatment of diseases and disorders.

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The patent positions of companies like Targacept are generally uncertain and involve complex legal and factual questions. Targacept’s ability to maintain and solidify its proprietary position for its product candidates and technology will depend on the success that Targacept has in obtaining valid patent claims and enforcing claims that are granted. Targacept does not know whether any of its patent applications or those patent applications that it licenses will result in the issuance of any patents. Targacept’s issued patents and those that may issue in the future, or those licensed to Targacept, may be challenged, invalidated, rendered unenforceable or circumvented, any of which could limit Targacept’s ability to stop competitors from marketing related products. In addition, the rights granted under any issued patents may not provide it with competitive advantages against competitors with similar compounds or technologies. Furthermore, Targacept’s competitors may independently develop similar technologies in a manner that does not infringe its patents or other intellectual property. If Targacept is unable to obtain, enforce or defend the patents with respect to its product candidates, its ability to monetize its product candidates would be materially and adversely affected.

Although Targacept owns or otherwise has rights to a number of patents, these patents may not effectively exclude competitors from engaging in activities that could compete with it. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability, and third parties may challenge the validity or enforceability of Targacept’s patents. The Leahy-Smith America Invents Act was signed into U.S. law September 26, 2011, and includes significant changes to patent law. One of the most notable changes is the transition from a “first-to-invent” to a “first-inventor-to-file” patent system. This is effective for patent applications filed on or after March 16, 2013. Because patent applications in the United States and many foreign countries are confidential for a period of time after filing, and because publications of discoveries in the scientific literature often lag behind actual discoveries, Targacept cannot be certain that it was the first to invent the inventions claimed in its issued U.S. patents or patent applications filed on or before March 16, 2013, or that Targacept was or will be the first to file for protection of the inventions claimed in any of its U.S. patent applications filed after March 16, 2013 or in any of its issued foreign patents or pending foreign patent applications. It is possible that a competitor may successfully challenge Targacept’s patents or that challenges will result in the elimination or narrowing of patent claims and, therefore, reduce its patent protection.

Because of the extensive time required for development, testing and regulatory review of a new drug, it is possible that any patent covering one of Targacept’s product candidates may expire before the product candidate can be commercialized or remain in force for only a short period following initial commercialization. In either case, any advantages of the patent would be limited. Changes either in patent laws or in interpretations or enforcement of patent laws in the United States and other countries may diminish the value of Targacept’s intellectual property or narrow the scope of its patent protection.

If Targacept is unable to protect the confidentiality of its proprietary information and know-how, the commercial value of its technology and product candidates could be reduced.

In addition to patents, Targacept relies on protection of trade secrets, know-how and confidential and proprietary information to maintain its competitive position. For example, Targacept generally does not seek patent protection for the computer-based molecular design technologies that form part of Pentad and instead seeks to maintain those technologies as trade secrets.

To maintain the confidentiality of trade secrets and proprietary information, Targacept generally enters into confidentiality agreements with its employees, consultants, contractors and collaborators upon the commencement of its relationship with them. These agreements typically require that all confidential information developed by the individual or made known to the individual by Targacept during the course of the individual’s relationship with Targacept be kept confidential and not disclosed to third parties. However, Targacept may not obtain these agreements in all circumstances, and individuals with whom Targacept has these agreements may not comply with their terms. Even if obtained, these agreements may not provide meaningful protection for Targacept’s trade secrets or other proprietary information or an adequate remedy in the event of their unauthorized use or disclosure. The loss or exposure of Targacept’s trade secrets or other proprietary information could impair its competitive position.

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Targacept also typically enter into agreements with employees that provide that inventions conceived by them in the course of rendering services to Targacept is its exclusive property and, where appropriate, it enters into similar agreements with consultants and contractors. To the extent that Targacept’s employees, consultants or contractors use technology or know-how owned by others in their work for Targacept, disputes may arise as to the rights in related inventions.

If Targacept fails to comply with its obligations in Targacept’s intellectual property licenses with third parties, Targacept could lose license rights that support its NNR Assets and, if it has sublicensed its license rights to a third-party, the loss of the license rights may breach Targacept’s obligations to its sublicensee.

Targacept is a party to various license agreements. As an example, Targacept licenses patent rights covering the pharmaceutical composition and methods of use of TC-5214 from University of South Florida Research Foundation. Targacept’s existing licenses impose, and Targacept expects future licenses will impose, various diligence, milestone payment, royalty, insurance and other obligations on it. If Targacept fails to comply with these obligations, whether as a result of actions or inactions by Targacept or by any potential future collaborator of Targacept’s to which Targacept out-license patent rights that Targacept has in-licensed from a third-party, the licensor may have the right to terminate the license, in which event Targacept may not be able to market any product that is covered by the licensed patents.

Targacept may be involved in lawsuits to protect or enforce Targacept’s patents that could be expensive and time-consuming.

Targacept may initiate patent litigation against third parties to protect or enforce Targacept’s patent rights and it may similarly be sued by third parties. Targacept may also become subject to interference, review or opposition proceedings conducted in the patent and trademark offices of various countries to determine its entitlement to patents. The defense and prosecution of intellectual property suits, interference proceedings and related legal and administrative proceedings, regardless of their merit, lack of merit or eventual outcome, would be costly and a significant diversion of Targacept’s technical personnel’s and management’s attention from conducting its business, which would harm its business. Moreover, Targacept may not prevail in any of these suits. An adverse determination of any litigation or proceeding could put Targacept’s patents at risk of being invalidated or narrowly interpreted and its patent applications at risk of not being issued and could prevent it from protecting its rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Risks Related to Catalyst

Risks related to Catalyst’s financial condition and capital requirements

Catalyst has incurred significant losses since its inception, and the combined company after the merger is expected to continue to incur significant losses for the foreseeable future.

Catalyst is a clinical-stage biotechnology company, and it has not yet generated significant revenues. Catalyst has incurred net losses in each year since its inception in August 2002, including net losses of $6.6 million and $10.0 million for the years ended December 31, 2014 and 2013, respectively and $2.9 million for the three months ended March 31, 2015. As of March 31, 2015, Catalyst had an accumulated deficit of $119.1 million.

Catalyst is still in the early stages of development of its product candidates, and has no products approved for commercial sale. To date, Catalyst has financed its operations primarily from private placements of convertible preferred stock, payments under collaboration agreements, and to a lesser extent through issuances of shares of common stock. In addition, due to Pfizer’s termination of its research and license agreement with Catalyst, Catalyst’s ability to use payments from collaboration agreements to finance its operations will be significantly reduced.

Catalyst has devoted most of its financial resources to research and development, including its preclinical development activities. Catalyst expects to continue to incur significant expenses and operating losses over the

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next several years. After the merger, the combined company’s operating losses may fluctuate significantly from quarter to quarter and year to year. The combined company is expected to continue to incur significant expenses and increasing operating losses for at least the next several years, and its expenses will increase substantially if and as Catalyst:

To become and remain profitable, Catalyst must succeed in developing and eventually commercializing products that generate significant revenue. This will require Catalyst to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which regulatory approval is obtained. Catalyst is only in the preliminary stages of most of these activities. Catalyst may never succeed in these activities and, even if it does, may never generate revenues that are significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, Catalyst is unable to accurately predict the timing or amount of increased expenses or when, or if, Catalyst will be able to achieve profitability. Even if Catalyst does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable would depress the value of the combined company and could impair its ability to raise capital, expand its business, maintain research and development efforts, diversify product offerings or even continue operations. A decline in the value of the combined company could also cause you to lose all or part of your investment.

Catalyst’s independent registered public accounting firm has expressed doubt about Catalyst’s ability to continue as a going concern.

Based on Catalyst’s recurring losses, negative cash flows from operating activities and expectations to incur losses for the next several years, Catalyst’s independent registered public accounting firm has included an explanatory paragraph in its report on Catalyst’s financial statements as of and for the years ended December 31,

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2014 and December 31, 2013 expressing substantial doubt about Catalyst’s ability to continue as a going concern. Catalyst will require significant additional funding to continue operations, in addition to those that will be contributed to its business in connection with the merger. If Catalyst is unable to continue as a going concern, it may be forced to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

Catalyst will need additional capital. If the combined company is unable to raise sufficient capital, it would be forced to delay, reduce or eliminate product development programs.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. Catalyst expects its research and development expenses to increase in connection with its ongoing activities, particularly activities related to the continued clinical development of CB 813d/PF-05280602, including a clinical efficacy trial, and if Phase 1 clinical trials of CB 2679d/ISU 304 are successful and this product candidate moves into Phase 2 clinical trials. Catalyst will also incur additional expenses if Catalyst’s product candidates for delayed graft function or age-related macular degeneration enter Phase 1 clinical trials. Expenses are also likely to increase as Catalyst continues to work on its research programs. Catalyst believes that Catalyst’s available cash immediately prior to the completion of the merger, together with cash held by Targacept following the Pre-Closing Distribution, will be sufficient for the combined company to fund the Company’s operations at least through 2016. However, the combined company will need to raise substantial additional capital to complete the development and commercialization of CB 813d/PF-05280602, CB 2679d/ISU 304 and its other product candidates, and depending on the availability of capital, may need to delay development of its product candidates for delayed graft function or age-related macular degeneration.

Prior to the completion of the merger, Targacept will issue $37.0 million in aggregate principal amount of redeemable convertible notes to its stockholders as part of the Pre-Closing Dividend, with an amount equal to the total principal deposited in an escrow account for the benefit of Targacept stockholders and Catalyst. The notes may be redeemed for cash or repaid upon maturity, but to the extent holders elect to convert any principal amount of the notes into shares of Targacept common stock within 30 months of the closing, those amounts would be released from escrow and made available to Catalyst. Except for this arrangement, Catalyst has no commitments or arrangements for any additional financing to fund its research and development programs. There can be no assurance regarding the amount of the notes that will be redeemed or the portion of the $37.0 million in capital that will become available to the combined company.

Until Catalyst can generate a sufficient amount of revenue from its product candidates, if ever, the combined company is expected to finance future cash needs through public or private equity offerings, debt financings, corporate collaborations and/or licensing arrangements. Additional funds may not be available when Catalyst needs them on terms that are acceptable, or at all. If adequate funds are not available, Catalyst may be required to delay, reduce the scope of or eliminate one or more of its research or development programs.

Because successful development of Catalyst’s product candidates is uncertain, Catalyst is unable to estimate the actual funds required to complete research and development and commercialize its products under development. Catalyst’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

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Raising additional funds by issuing securities or through licensing arrangements may cause dilution to stockholders, restrict Catalyst’s operations or require Catalyst to relinquish proprietary rights.

To the extent that Catalyst raises additional capital through the sale of equity or convertible debt securities, stockholders following completion of the merger will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting Catalyst’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Catalyst raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, Catalyst may have to relinquish valuable rights to its technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to Catalyst. Catalyst may also seek to access the public or private capital markets whenever conditions are favorable, even if Catalyst does not have an immediate need for additional capital at that time. There can be no assurance that Catalyst will be able to obtain additional funding if and when necessary. If Catalyst is unable to obtain adequate financing on a timely basis, it could be required to delay, curtail or eliminate one or more, or all, of its development programs or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.

Catalyst has no history of clinical development or commercialization of pharmaceutical products, which may make it difficult to evaluate the prospects for the combined company’s future viability.

Catalyst began operations in August 2002. Its operations to date have been limited to financing and staffing the company, developing Catalyst’s technology and product candidates and establishing collaborations. Catalyst has not yet demonstrated an ability to successfully conduct a clinical trial, obtain marketing approvals, manufacture a product for clinical trials or at commercial scale, or arrange for a third-party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about the combined company’s future success or viability may not be as accurate as they could be if Catalyst had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

Risks related to the discovery, development and commercialization of Catalyst’s product candidates

Catalyst is substantially dependent upon the success of CB 813d/PF-05280602, which is its only product candidate that has completed a Phase 1 clinical trial.

The failure of CB 813d/PF-05280602 to achieve successful clinical trial endpoints, delays in clinical trial enrollment or in the clinical development of CB 813d/PF-05280602 generally, unanticipated adverse side effects related to CB 813d/PF-05280602 or any other adverse developments or information related to CB 813d/PF-05280602 would significantly harm Catalyst’s business, its prospects and the value of the combined company’s common stock. Catalyst expects to advance CB 813d/PF-05280602 into a clinical efficacy trial in hemophilia A and hemophilia B inhibitor patients. There is no guarantee that the results of this clinical trial, if it occurs, will be positive or will not generate unanticipated safety concerns. The Phase 1 clinical trial of CB 813d/PF-05280602 was a single-dose escalation trial that would not, compared to multi-dose trials, be expected to exclude the

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possibility of an immunological response to CB 813d/PF-05280602 in patients who received the product candidate. If subsequent multi-dose trials demonstrate an immunological response, development of CB 813d/PF-05280602 could be halted.

Even if the next trials of CB 813d/PF-05280602 are positive, CB 813d/PF-05280602 may require substantial additional trials and other testing before approving CB 813d/PF-05280602 for marketing. Even if the FDA or other regulatory agency approves CB 813d/PF-05280602, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product and may impose ongoing commitments or requirements for post-approval studies, including additional research and development and clinical trials. The FDA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval. Regulatory approval from authorities in foreign countries will be needed to market CB 813d/PF-05280602 in those countries. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. If Catalyst fails to obtain approvals from foreign jurisdictions, the geographic market for CB 813d/PF-05280602 would be limited.

CB 813d/PF-05280602 is not expected to be commercially available in the near term, if at all. Further, the commercial success of CB 813d/PF-05280602 will depend upon its acceptance by physicians, patients, third-party payors and other key decision-makers as a therapeutic and cost effective alternative to currently available products. If Catalyst is unable to successfully develop, obtain regulatory approval for and commercialize CB 813d/PF-05280602, Catalyst’s ability to generate revenue from product sales will be significantly delayed and Catalyst’s business would be materially and adversely affected, and it may not be able to earn sufficient revenues to continue as a going concern.

Catalyst must transition manufacturing and clinical activities related to CB 813d/PF-05280602 from Pfizer, which had conducted the Phase 1 clinical trial of this product candidate, and this process will be lengthy and its outcome uncertain.

Pfizer conducted the Phase 1 clinical trial of CB 813d/PF-05280602 pursuant to a research and license agreement, which Pfizer has terminated effective June 1, 2015. Under this license agreement, Catalyst and Pfizer collaborated on the development of CB 813d/PF-05280602, and Pfizer was responsible for product manufacturing and clinical trials. To continue development of CB 813d/PF-05280602, Catalyst must successfully transition manufacturing and clinical development activities from Pfizer. Catalyst is in discussions with Pfizer about obtaining manufacturing technology and know-how related to CB 813d/PF-05280602, although there can be no assurance that Catalyst and Pfizer will agree to the terms or mechanism for such transfer, or that any such technology and know-how transfer will be successful. If Catalyst is not able to successfully transfer manufacturing technology and know-how from Pfizer related to CB 813d/PF-05280602, clinical development of this product candidate could be significantly delayed.

The biological basis of Catalyst’s product candidates exposes them to risk of adverse immunological response, which could result in the failure of a product to advance further in clinical trials or, with respect to approved products, result in its removal from the market.

All of Catalyst’s product candidates are modified versions of human proteases. As a result, they have the potential to elicit an immunological response that eliminates or neutralizes the product, severely inhibiting its efficacy. This in turn could result in the failure of any of Catalyst’s product candidates to advance into further clinical trials, or for any approved products to be removed from the market if adverse immunological responses are identified after approval.

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Catalyst is very early in its development efforts and has only one product candidate that has completed a Phase 1 clinical trial. All of Catalyst’s other product candidates are still in preclinical development. If Catalyst is unable to commercialize its product candidates or experiences significant delays in doing so, the combined company’s business will be materially harmed.

Catalyst is very early in its development efforts and has only one product candidate that has completed a Phase 1 clinical trial, CB 813d/PF-05280602. All of Catalyst’s other product candidates are still in preclinical development. Catalyst expects to advance CB 813d/PF-05280602 into a clinical efficacy trial in hemophilia A and hemophilia B inhibitor patients. In addition, Catalyst expects that its collaborator ISU Abxis will initiate a Phase 1 clinical trial of CB 2679d/ISU 304, Catalyst’s next-generation Factor IX drug candidate for the treatment of patients with hemophilia B, in 2016. Catalyst also expects to initiate preclinical IND-enabling studies for its anti-C3 protease for the prevention of renal delayed graft function, or DGF, in 2015. Catalyst’s ability to generate product revenues, which it does not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of these and other product candidates. The success of its product candidates will depend on several factors, including the following:

If Catalyst does not achieve one or more of these factors in a timely manner or at all, Catalyst could experience significant delays or an inability to successfully commercialize its product candidates, which would materially harm the combined company’s business.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome. Results from Catalyst’s successful Phase 1 trials may not be confirmed in later trials, and if serious adverse or unacceptable side effects are identified during the development of Catalyst’s product candidates, Catalyst may need to abandon or limit its development of some of its product candidates.

Clinical testing is expensive, time-consuming and uncertain as to outcome. Catalyst cannot guarantee that any preclinical studies and clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of Catalyst’s product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug product is not approvable. It is possible that even if one or more of Catalyst’s product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of

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Catalyst’s clinical trials. Conversely, as a result of the same factors, Catalyst’s clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in its clinical trials Catalyst may fail to detect toxicity of or intolerability caused by its product candidates, or mistakenly believe that its product candidates are toxic or not well tolerated when that is not in fact the case.

In addition, the outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials. For example, the Phase 1 clinical trial of CB 813d/PF-05280602 was a single dose trial, and adverse immunological reactions would not be likely to appear until patients received a second dose.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and Catalyst may face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Catalyst has limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if Catalyst believes that the results of clinical trials for Catalyst’s product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of Catalyst’s product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Any Phase 2, Phase 3 or other clinical trials that Catalyst may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market Catalyst’s product candidates.

If Catalyst’s product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected, Catalyst may need to abandon development or limit development of the product candidate to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

If Catalyst experiences delays or difficulties in the enrollment of patients in clinical trials, its receipt of necessary regulatory approvals could be delayed or prevented.

Catalyst or its collaborators may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate, enroll and maintain enrolment of a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, there are a relatively small number of hemophilia patients, which may cause delays in enrollment of clinical trials of CB 813d/PF-05280602 or CB 2679d/ISU 304 in hemophilia. In addition, some of Catalyst’s competitors have ongoing clinical trials for product candidates that treat the same indications as Catalyst’s product candidates, and patients who would otherwise be eligible for Catalyst’s clinical trials may instead enroll in clinical trials of its competitors’ product candidates.

Patient enrollment is affected by other factors including:

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Inability of Catalyst to enroll a sufficient number of patients for its clinical trials would result in significant delays and could require it to abandon one or more clinical trials altogether. Enrollment delays in clinical trials conducted by Catalyst may also result in increased development costs for its product candidates, which would cause the value of the combined company to decline and limit its ability to obtain additional financing.

Catalyst may not be successful in its efforts to use and expand its protease platform to discover and develop drugs that lead to marketable products.

A key element of Catalyst’s strategy is to use its protease platform to build a hemostasis franchise and an anti-compliment franchise, which include several highly differentiated drug candidates that address diseases with high unmet medical needs, including delayed graft function, or DGF, and dry age-related macular degeneration, or AMD. The discovery of biopharmaceutical products based on the creation of novel proteases is an emerging field, and the scientific discoveries that form the basis for Catalyst’s efforts to discover and develop product candidates using this technology are relatively new. Although modified human protease drugs have been developed, no drugs have been developed premised on novel engineered proteases that preferentially cleave the target of interest. Furthermore, no drugs directly targeting complement factor C3 have been approved.

Accordingly, Catalyst does not know if its approach of using proteases to regulate coagulation and complement cascades will successfully result in the development of additional product candidates for target indications that are safe and effective. Even if Catalyst is successful in continuing to build its pipeline, the potential product candidates that Catalyst identifies may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be product candidates that will receive marketing approval and achieve market acceptance. If Catalyst does not successfully develop and commercialize product candidates based upon its technological approach, it will not be able to obtain product revenues in future periods, which likely would result in significant harm to its financial position and adversely affect the combined company’s stock price.

Risks related to Catalyst’s reliance on third parties

Catalyst depends on its collaborative relationship with ISU Abxis for the Phase 1 development of CB 2679d/ISU 304.

Catalyst has entered into a collaboration agreement with ISU Abxis for preclinical and Phase 1 development of an improved, next-generation Factor IX product, CB 2679d/ISU 304, to enable an investigational new drug application, which will require ISU Abxis to obtain approval from South Korean regulatory authorities to conduct trials. Under this agreement, ISU Abxis is responsible for manufacturing and Phase 1 clinical trials of this product candidate, and Catalyst depends on ISU Abxis to complete these activities.

Catalyst’s ability to generate revenues from this arrangement will depend on the ability of ISU Abxis to successfully perform the functions assigned to it in this arrangement, and accordingly, any failure by ISU Abxis to develop this product candidate could adversely affect Catalyst’s cash flows. Further, this collaboration agreement may not lead to development or commercialization of this product candidate in the most efficient manner or at all, and ISU Abxis has the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. Catalyst is subject to a number of risks associated with its dependence on ISU Abxis:

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Catalyst expects to seek to establish additional collaborations, and, if it is not able to establish them on commercially reasonable terms, Catalyst may have to alter its development and commercialization plans.

Catalyst’s drug development programs and the potential commercialization of its product candidates will require substantial additional cash to fund expenses. Accordingly, Catalyst may seek one or more additional collaborators for the development and commercialization of one or more of its product candidates. For example, Catalyst may seek a new collaborator to develop CB 813d/PF-05280602 and might also seek collaborators for CB 2689d/ISU 304 or its Factor Xa product candidates. In addition, full development efforts on the use of Catalyst’s novel proteases for the treatment of DGF or dry AMD will likely involve significant cost, and Catalyst expects that it may conduct any such efforts in collaboration with one or more partners.

Catalyst faces significant competition in seeking appropriate collaborators. Whether Catalyst can reach a definitive agreement for a collaboration will depend, among other things, upon Catalyst’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of preclinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with Catalyst for its product candidate. There can be no assurance that any collaboration agreements will be on favorable terms.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Catalyst may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Catalyst is unable to do so, it may have to curtail the development of the product candidate for which it is seeking to collaborate, reduce or delay its development program or one or more of its other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, and increase its expenditures and undertake development or commercialization activities at its own expense. If Catalyst elects to increase its expenditures to fund development or commercialization activities on its own, Catalyst may need to obtain additional capital, which may not be available to it on acceptable terms or at all. If Catalyst does not have sufficient funds, it may not be able to further develop its product candidates or bring them to market and generate product revenue.

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Catalyst contracts with third parties for the manufacture of its product candidates for preclinical testing and expects to continue to do so for clinical testing and commercialization. This reliance on third parties increases the risk that Catalyst will not have sufficient quantities of its product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair its development or commercialization efforts.

Catalyst currently has no internal capabilities to manufacture its product candidates for clinical use or for preclinical trials following good manufacturing practices, or GMP, or good laboratory practices, or GLP. Catalyst expects to rely on one or more third-party contractors to manufacture, package, label and distribute clinical supplies and commercial quantities of any product candidate that Catalyst commercializes following approval for marketing by applicable regulatory authorities. Catalyst also expects to rely on one or more third-party contractors to manufacture its product candidates for use in its clinical trials. Reliance on such third-party contractors entails risks, including:

Catalyst may incur delays in product development resulting from the need to identify or qualify manufacturers for its product candidates. Catalyst’s current and anticipated future dependence upon others for the manufacture of its product candidates may adversely affect its future profit margins and its ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Catalyst and its contract manufacturers will be subject to significant regulation with respect to manufacturing Catalyst’s products. The manufacturing facilities on which Catalyst will rely may not continue to meet regulatory requirements and have limited capacity.

All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including any contract manufacturers for Catalyst’s product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with GMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of Catalyst’s product candidates that may not be detectable in final product testing. Catalyst or its contract manufacturers must supply all necessary documentation in support of a Biologics License Application on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and GMP regulations

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enforced by the FDA through its facilities inspection program. Catalyst’s facilities and quality systems and the facilities and quality systems of some or all of its third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of Catalyst’s product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of Catalyst’s product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, audit Catalyst’s manufacturing facilities or those of its third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of Catalyst’s product specifications or applicable regulations occurs independent of such an inspection or audit, Catalyst or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for Catalyst or a third-party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon Catalyst or third parties with whom Catalyst contracts could materially harm Catalyst’s business.

If Catalyst or any of its third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, Catalyst’s business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a Biologics License Application supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in Catalyst’s desired clinical and commercial timelines.

These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of Catalyst’s product candidates, cause Catalyst to incur higher costs and prevent it from commercializing its products successfully. Furthermore, if Catalyst’s suppliers fail to meet contractual requirements, and Catalyst is unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, Catalyst’s clinical studies may be delayed or Catalyst could lose potential revenue.

Catalyst expects to rely on third parties to conduct its clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

Catalyst expects to rely on third parties such as contract research organizations, or CROs, medical institutions and clinical investigators to enroll qualified patients and conduct, supervise and monitor clinical trials. Catalyst’s reliance on these third parties for clinical development activities will reduce its control over these activities. Catalyst’s reliance on these third parties, however, will not relieve Catalyst of its regulatory responsibilities, including ensuring that its clinical studies are conducted in accordance with good clinical practices, or GCP, and the investigational plan and protocols contained in the relevant regulatory application, such as an investigational new drug application, or IND. In addition, the CROs with whom Catalyst contracts may not complete activities on schedule, or may not conduct Catalyst’s preclinical studies or clinical studies in accordance with regulatory requirements or Catalyst’s clinical study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, Catalyst’s efforts to obtain regulatory approvals for, and to commercialize, its product candidates may be delayed or prevented.

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Risks related to employee matters, managing growth and Catalyst’s business operations  

Catalyst’s future success depends on its ability to retain key executives and to attract, retain and motivate qualified personnel.

Catalyst’s ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon its ability to attract and retain highly qualified managerial, scientific and medical personnel. Catalyst is highly dependent on its management and scientific personnel, including its President and Chief Executive Officer, Dr. Usman, its Chief Scientific Officer, Dr. Madison, and its Chief Financial Officer, Fletcher Payne. Catalyst does not maintain “key man” insurance policies on the lives of these individuals or the lives of any of its other employees. In addition, Catalyst will need to add personnel to its clinical development program in order to achieve its business objectives, including a Chief Medical Officer and head of manufacturing. The loss of the services of any of Catalyst’s executive officers, other key employees, and Catalyst’s inability to find suitable replacements, or Catalyst’s inability to hire new clinical development and manufacturing personnel, could result in delays in product development and harm Catalyst’s business.

Catalyst conducts operations at its facility in the San Francisco Bay Area. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in Catalyst’s market is intense and may limit Catalyst’s ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at Catalyst, in addition to salary and cash incentives, Catalyst has provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in the combined company’s stock price that are beyond Catalyst’s control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite Catalyst’s efforts to retain valuable employees, members of management and scientific and development teams may terminate their employment with us on short notice. Catalyst’s employees are under at-will employment arrangements, which means that any of its employees could leave employment with Catalyst at any time, with or without notice. Failure to retain, replace or recruit personnel could harm Catalyst’s business.

Catalyst expects to expand its development and regulatory capabilities and as a result, may encounter difficulties in managing its growth, which could disrupt its operations.

Catalyst expects to experience significant growth in the number of its employees and the scope of its operations, particularly in the areas of clinical development and, if any of its product candidates receive marketing approval, sales, marketing and distribution. To manage Catalyst’s anticipated future growth, Catalyst must continue to implement and improve its managerial, operational and financial systems, expand its facilities and continue to recruit and train additional qualified personnel. Catalyst may not be able to effectively manage the expansion of its operations or recruit and train additional qualified personnel. The expansion of Catalyst’s operations may lead to significant costs and may divert management and business development resources. Any inability to manage growth could delay the execution of Catalyst’s business plans or disrupt its operations.

Catalyst’s employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

Catalyst is exposed to the risk of fraud or other misconduct by its employees, principal investigators, consultants and collaborators. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to Catalyst. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or

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prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to Catalyst’s reputation. It is not always possible to identify and deter employee misconduct, and the precautions Catalyst takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Catalyst from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against Catalyst and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of significant fines or other sanctions.

Catalyst will incur significant increased costs as a result of operating as a public company, and its management will be required to devote substantial time to new compliance initiatives.

Following completion of the merger and operating as a public company, Catalyst’s business will incur significant legal, accounting and other expenses that Catalyst has not incurred as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and The Nasdaq Global Select Market have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which Catalyst operates its business in ways that are not currently anticipated. Catalyst’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase Catalyst’s legal and financial compliance costs and will make some activities more time-consuming and costly. For example, Catalyst expects these rules and regulations to make it more difficult and more expensive for Catalyst to obtain director and officer liability insurance and Catalyst may be required to incur substantial costs to maintain its current levels of such coverage. Catalyst estimates that it will annually incur significant additional expenses to comply with the requirements imposed on it as a public company.

Catalyst or the third parties upon whom it depends may be adversely affected by earthquakes or other natural disasters and Catalyst’s business continuity and disaster recovery plans may not adequately protect it from a serious disaster.

Earthquakes or other natural disasters could severely disrupt Catalyst’s operations, and have a material adverse effect on its business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented Catalyst from using all or a significant portion of its headquarters, that damaged critical infrastructure, such as the manufacturing facilities of its third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for Catalyst to continue its business for a substantial period of time. The disaster recovery and business continuity plans Catalyst has in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. Catalyst may incur substantial expenses as a result of the limited nature of its disaster recovery and business continuity plans, which, particularly when taken together with its lack of earthquake insurance, could have a material adverse effect on its business.

Risks related to Catalyst’s intellectual property

If Catalyst is unable to obtain, protect or enforce intellectual property rights related to its product candidates, it may not be able to compete effectively in its markets.

Catalyst relies upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to its product candidates. The strength of patents in the biotechnology and

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pharmaceutical field involves complex legal and scientific questions and can be uncertain. Third parties may challenge the validity, enforceability or scope of Catalyst’s patents, which may result in those patents being narrowed or invalidated. The patent applications that Catalyst owns may fail to result in issued patents with claims that cover its product candidates in the United States or in other foreign countries. Furthermore, even if they are unchallenged, Catalyst’s patents and patent applications may not adequately protect Catalyst’s intellectual property, provide exclusivity for Catalyst’s product candidates or prevent others from designing around Catalyst’s claims. Certain of Catalyst’s patents also cover processes, for which enforcement can be especially difficult. Any of these outcomes could impair Catalyst’s ability to prevent competition from third parties, which may have an adverse impact on Catalyst’s business.

If the patents or patent applications Catalyst holds or has in-licensed with respect to its programs or product candidates are invalidated or fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for Catalyst’s product candidates, it could threaten Catalyst’s ability to commercialize future products. Further, if Catalyst encounters delays in regulatory approvals, the period of time during which Catalyst could market a product candidate under patent protection could be reduced. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Once the patent life has expired for a product, Catalyst may be open to competition from generic medications.

In addition to the protection afforded by patents, Catalyst relies on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that Catalyst elects not to patent and other elements of Catalyst’s product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. Catalyst seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors and contractors. Catalyst also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Catalyst has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Catalyst may not have adequate remedies for any breach. In addition, Catalyst’s trade secrets may otherwise become known or be independently discovered by competitors.

Although Catalyst expects all of its employees and consultants to assign their inventions to Catalyst, and all of Catalyst’s employees, consultants, advisors and any third parties who have access to its proprietary know-how, information or technology to enter into confidentiality agreements, Catalyst cannot provide any assurances that all such agreements have been duly executed or that Catalyst’s trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to Catalyst’s trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of Catalyst’s trade secrets could impair Catalyst’s competitive position and may have a material adverse effect on Catalyst’s business. Additionally, if the steps taken to maintain Catalyst’s trade secrets are deemed inadequate, Catalyst may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover Catalyst’s trade secrets and proprietary information.

Further, filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and Catalyst’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, Catalyst may encounter significant problems in protecting and defending its intellectual property both in the United States and abroad. If Catalyst is unable to prevent material disclosure of the non-patented intellectual property related to its technologies to third parties, and there is no guarantee that Catalyst will have any such enforceable trade secret protection, Catalyst may not be able to establish or maintain a competitive advantage in its market, which could materially adversely affect its business, results of operations and financial condition.

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Third-party claims of intellectual property infringement or challenging the inventorship or ownership of Catalyst’s patents may prevent or delay Catalyst’s development and commercialization efforts.

Catalyst’s commercial success depends in part on its avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which Catalyst is pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Catalyst’s product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that the manufacture, use or sale of Catalyst’s product candidates infringes patents held by such third parties, or that Catalyst is employing their proprietary technology without authorization. For example, Catalyst is aware of a patent that has issued in Europe (with counterparts in Australia, China, Japan, Poland, and Korea) and includes a claim that may read on CB 813d/PF-05280602. An opposition proceeding with respect to such patent is in process, and there can be no assurance of the outcome of such proceeding. There can also be no assurance whether or not the claims of such patent would be found to read on CB 813d/PF-05280602 even if a claim survives the opposition. There may be third-party patents or patent applications with claims to compositions of matter, materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of Catalyst’s product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that Catalyst’s product candidates may infringe.

In addition, Catalyst has received confidential and proprietary information from third parties, and Catalyst employs individuals who were previously employed at other biotechnology or pharmaceutical companies. Catalyst may be subject to claims that it or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or Catalyst’s employees’ former employers. Litigation may be necessary to defend against these claims.

Parties making claims against Catalyst may obtain injunctive or other equitable relief, which could effectively block Catalyst’s ability to further develop and commercialize one or more of its product candidates unless Catalyst redesigned infringing products (which may be impossible) or obtained a license under the applicable patents (which may not be available on commercially reasonable terms or at all), or until such patents expire.

Catalyst may be involved in lawsuits to protect or enforce its patents.

Competitors may infringe Catalyst’s patents. To counter infringement or unauthorized use, Catalyst or its collaborators may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of Catalyst is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that Catalyst’s patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of Catalyst’s patents at risk of being invalidated or interpreted narrowly and could put Catalyst’s patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by Catalyst may be necessary to determine the priority of inventions with respect to its patents or patent applications or those of Catalyst’s licensors. An unfavorable outcome could require Catalyst to cease using the related technology or to attempt to license rights to it from the prevailing party. Catalyst’s business could be harmed if the prevailing party does not offer Catalyst a license on commercially reasonable terms. Catalyst may not be able to prevent, alone or with its licensors, misappropriation of its intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Catalyst’s confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of the combined company’s common stock.

Intellectual property litigation could cause Catalyst to spend substantial resources and distract its personnel from their normal responsibilities.

Even if resolved in Catalyst’s favor, litigation or other legal proceedings relating to intellectual property claims, regardless of their merit, would cause Catalyst to incur significant expenses, and could distract its technical and management personnel from their normal responsibilities. In the event of a successful claim of infringement against Catalyst, it may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, in addition to paying royalties, redesign infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the combined company’s common stock. Such litigation or proceedings could substantially increase Catalyst’s operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Catalyst may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of its competitors may be able to sustain the costs of such litigation or proceedings more effectively than Catalyst can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise Catalyst’s ability to compete in the marketplace.

Catalyst may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third-party may hold intellectual property, including patent rights, that are important or necessary to the development of Catalyst’s products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize Catalyst’s products, in which case Catalyst would be required to obtain a license from these third parties on commercially reasonable terms, or Catalyst’s business could be harmed, possibly materially.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of Catalyst’s patent applications and the enforcement or defense of its issued patents, and changes in U.S. patent law could diminish the value of patents in general, thereby impairing Catalyst’s ability to protect its products.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. PTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. However, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of Catalyst’s business. Further, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Catalyst’s patent applications and the enforcement or defense of its issued patents, all of which could have a material adverse effect on Catalyst’s business and financial condition.

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Risks related to regulatory approval of Catalyst’s product candidates and other legal compliance matters

If Catalyst is not able to obtain, or if there are delays in obtaining, required regulatory approvals, Catalyst will not be able to commercialize its product candidates, and its ability to generate revenue will be materially impaired.

While Catalyst has multiple drug candidates in clinical and advanced preclinical development for a range of diseases, it has not yet submitted biologics license applications, or BLAs, for its engineered human proteases to the FDA, or similar approval filings to comparable foreign authorities. Submission of a BLA requires extensive preclinical and clinical data and supporting information that demonstrates the product candidate’s safety, purity, and potency, also known as safety and effectiveness, for each desired indication. A BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. One of Catalyst’s product candidates, CB 813d/PF-05280602, has completed a Phase 1 clinical trial. However, failure of one or more clinical trials can occur at any stage in the clinical trial process. Accordingly, the regulatory pathway for Catalyst’s product candidates is still uncertain, complex, and lengthy, and ultimately approval may not be obtained.

Catalyst may experience delays in completing planned clinical trials for a variety of reasons, including delays related to:

Catalyst could also experience delays in obtaining approval if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of its product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles given the serious nature of the diseases for the core indications for Catalyst’s product candidates. Additionally, a clinical trial may be suspended or terminated by Catalyst, the IRBs for the institutions in which the trials are being conducted, the Data Monitoring Committee for the trial, or by the FDA or other regulatory authorities for a number of reasons, including failure to conduct the clinical trial in accordance with regulatory requirements or Catalyst’s clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues, or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If Catalyst experiences termination of, or delays in the completion of, any clinical trial of its product candidates, its ability to commercialize its product candidates will be harmed and its ability to generate revenue will be materially impaired. Additionally, delays in completing trials will increase costs, slow down Catalyst’s product development and approval process, and impair Catalyst’s ability to commence product sales and generate revenue. Many of the factors that could create or lead to a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval for Catalyst’s product candidates.

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The FDA may disagree with Catalyst’s regulatory plan and Catalyst may fail to obtain regulatory approval of its product candidates.

The results of clinical trials conducted by Catalyst may not support regulatory approval of its product candidates. Catalyst’s product candidates could ultimately fail to receive regulatory approval for many reasons, including the following:

Catalyst’s relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose Catalyst to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which Catalyst obtains marketing approval. Catalyst’s future arrangements with third-party payors and customers may expose Catalyst to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which it would market, sell and distribute its products. As a pharmaceutical company, even though Catalyst does not and may not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to Catalyst’s business. These regulations include:

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Efforts to ensure that Catalyst’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Catalyst’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Catalyst’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, Catalyst may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of its operations. If any physicians or other healthcare providers or entities with whom Catalyst expects to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

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Recently enacted and future legislation may increase the difficulty and cost for Catalyst to obtain marketing approval of and commercialize its product candidates and affect the prices for Catalyst’s product candidates.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of Catalyst’s product candidates, restrict or regulate post-approval activities and affect Catalyst’s ability to profitably sell any product candidates for which it obtains marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that Catalyst receives for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

Among the provisions of the PPACA of importance to Catalyst’s potential product candidates are the following:

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations

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period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

Catalyst expects that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that Catalyst or its collaborators may receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Catalyst from being able to generate revenue, attain profitability, or commercialize its products.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Catalyst cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of Catalyst’s product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject Catalyst to more stringent product labeling and post-marketing testing and other requirements.

If Catalyst fails to comply with environmental, health and safety laws and regulations, Catalyst could become subject to fines or penalties or incur costs that could harm its business.

Catalyst is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, Catalyst’s operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if Catalyst contracts with third parties for the disposal of these materials and waste products, Catalyst cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of Catalyst’s hazardous materials, Catalyst could be held liable for any resulting damages, and any liability could exceed its resources. Catalyst also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Catalyst maintains workers’ compensation insurance to cover it for costs and expenses it may incur due to injuries to its employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, Catalyst does not maintain insurance for environmental liability or toxic tort claims that may be asserted against it.

In addition, Catalyst may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair Catalyst’s research, development or production efforts, which could adversely affect its business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

Catalyst faces potential product liability, and, if successful claims are brought against it, Catalyst may incur substantial liability and costs. If the use of Catalyst’s product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to Catalyst’s product candidates, regulatory approvals could be revoked or otherwise negatively impacted and Catalyst could be subject to costly and damaging product liability claims.

The use of Catalyst’s product candidates in clinical trials and the sale of any products for which it obtains marketing approval exposes Catalyst to the risk of product liability claims. Product liability claims might be brought against Catalyst by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with Catalyst’s products. There is a risk that Catalyst’s product candidates may

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induce adverse events. If Catalyst cannot successfully defend against product liability claims, it could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

Catalyst carries product liability insurance of $5,000,000 per occurrence and $5,000,000 aggregate limit. Catalyst believes its product liability insurance coverage is sufficient in light of its current clinical programs; however, Catalyst may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect it against losses due to liability. If and when Catalyst obtains marketing approval for product candidates, it intends to expand its insurance coverage to include the sale of commercial products; however, Catalyst may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against Catalyst could cause the combined company’s stock price to decline and, if judgments exceed insurance coverage, could adversely affect Catalyst’s results of operations and business.

Patients with the diseases targeted by Catalyst’s product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to Catalyst’s product candidates. Such events could subject Catalyst to costly litigation, require it to pay substantial amounts of money to injured patients, delay, negatively impact or end its opportunity to receive or maintain regulatory approval to market its products, or require it to suspend or abandon its commercialization efforts. Even in a circumstance in which Catalyst does not believe that an adverse event is related to Catalyst’s products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt Catalyst’s sales efforts, delay its regulatory approval process in other countries, or impact and limit the type of regulatory approvals its product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on Catalyst’s business, financial condition or results of operations.

Risks related to commercialization of Catalyst’s product candidates

Even if any of Catalyst’s product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any of Catalyst’s product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current hemophilia treatments like NovoSeven are well established in the medical community, and doctors may continue to rely on these treatments. If Catalyst’s product candidates do not achieve an adequate level of acceptance, Catalyst may not generate significant product revenues and it may not become profitable. The degree of market acceptance of Catalyst’s product candidates, if approved for commercial sale, will depend on a number of factors, including:

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If Catalyst is unable to establish sales, marketing and distribution capabilities, it may not be successful in commercializing its product candidates if and when they are approved.

Catalyst has not yet established a sales, marketing or product distribution infrastructure for its other product candidates, which are still in preclinical or early clinical development. Except for ISU Abxis’ potential rights to commercialize CB 2679d/ISU 304 in Korea, Catalyst generally expects to retain commercial rights for the company’s hemophilia product candidates. Catalyst believes that it will be possible to access the United States hemophilia market through a focused, specialized sales force. However, Catalyst has not yet developed a commercial strategy for hemophilia products outside of the United States, or for any other of its product candidates. To achieve commercial success for any product for which Catalyst obtains marketing approval, it will need to establish a sales and marketing organization within the United States, and develop a strategy for sales outside of the United States.

There are risks involved with establishing internal sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which Catalyst recruits a sales force and establishes marketing capabilities is delayed or does not occur for any reason, Catalyst would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and Catalyst’s investment would be lost if it cannot retain or reposition its sales and marketing personnel. If Catalyst is unable to establish its sales, marketing and distribution capabilities and enter into additional arrangements with third parties to perform these services, its product revenues and profitability, if any, are likely to be lower than if Catalyst were to market, sell and distribute any products that it develops itself.

Catalyst faces substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than Catalyst does.

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. Catalyst faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that Catalyst successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future.

Specifically, there are a large number of companies developing or marketing treatments for hemophilia, including many major pharmaceutical and biotechnology companies, including Novo Nordisk, which has developed NovoSeven, a human recombinant coagulation Factor VIIa indicated for treatment of bleeding episodes that has been approved for use in treatment of hemophilia A or B patients with inhibitors to Factor VIII or Factor IX and in patients with Factor VII deficiency and Glanzmann’s thrombasthenia, Baxter, which has developed BAX817, a biosimilar of NovoSeven that recently completed a Phase 3 clinical trial, Roche, which is developing a biospecific Factor VIII-Factor IX monoclonal antibody, and Alnylam, which is developing an investigational RNAi therapeutic targeting antithrombin for the treatment of hemophilia.

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Catalyst’s commercial opportunity in different indications could be reduced or eliminated if competitors develop and market products that are more convenient to use, more effective, less expensive, and safer to use than Catalyst’s products. Furthermore, if competitors gain FDA approval faster than Catalyst does, Catalyst may be unable to establish a strong market presence or to gain market share. The key competitive factors affecting the success of all of Catalyst’s product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition, and the availability of reimbursement from government and other third-party payors.

Many of the companies against which Catalyst is competing or against which Catalyst may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than Catalyst does. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of Catalyst’s competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with Catalyst in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, Catalyst’s programs.

Even if Catalyst is able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm Catalyst’s business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Catalyst might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay its commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues Catalyst is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder Catalyst’s ability to recoup its investment in one or more product candidates, even if Catalyst’s product candidates obtain marketing approval.

Catalyst’s ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for any product that Catalyst or its collaborators commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate that receives marketing approval. Obtaining and maintaining adequate reimbursement for Catalyst’s products may be difficult. Catalyst may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, Catalyst may not be able to successfully commercialize any product candidate for which Catalyst obtains marketing approval.

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There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers Catalyst’s costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover Catalyst’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Catalyst’s inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that Catalyst develops could have a material adverse effect on its operating results, ability to raise capital needed to commercialize products and overall financial condition.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit Catalyst’s ability to market those products and decrease its ability to generate revenue.

The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of Catalyst’s product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of its product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, Catalyst may not be able to successfully commercialize its product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Catalyst to establish or maintain pricing sufficient to realize a sufficient return on its investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for Catalyst’s product candidates. Catalyst expects to experience pricing pressures in connection with the sale of any of its product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

If the market opportunities for Catalyst’s product candidates are smaller than expected, Catalyst’s revenues may be adversely affected and Catalyst’s business may suffer.

Catalyst focuses its research and product development on hemostasis and inflammation treatment. Catalyst’s projections of both the number of people who suffer from related conditions, as well as the subset of people with these conditions who have the potential to benefit from treatment with Catalyst’s product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with Catalyst’s products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect Catalyst’s results of operations and its business.

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Risks Related to an Investment in Targacept’s Common Stock and the Redeemable Convertible Notes

Following the merger, the concentration of the combined company’s capital stock ownership with its executive officers and directors, and their respective affiliates, will limit your ability to influence corporate matters.

Significant stockholders of the combined company, acting together, after completion of the merger, will have the ability to affect matters submitted to Targacept’s stockholders for approval, including the approval of significant transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a strategic transaction, even if such a transaction would benefit other stockholders. As a result, the market price of Targacept’s common stock could be adversely affected.

The market price of Targacept’s common stock has historically been highly volatile and the merger may result in significant stock price and trading volume fluctuations.

The trading price of Targacept’s common stock has historically been highly volatile, and the merger may result in significant stock price and trading volume fluctuations. Targacept cannot predict precisely the impact the announcement, pendency or completion of the merger will have on its stock price. Additionally, the stock market in general has experienced extreme price and volume fluctuations. The market prices of securities of pharmaceutical, biopharmaceutical and biotechnology companies in particular have been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to operating performance. Factors giving rise to this volatility may include:

Fluctuations in operating results could adversely affect the price of Targacept’s common stock.

Targacept’s and, following the merger, the combined company’s, operating results are likely to fluctuate significantly from quarter to quarter and year to year. These fluctuations could cause Targacept’s stock price to decline. Some of the factors that may cause operating results to fluctuate on a period-to-period basis include the scope, progress, duration results and costs of preclinical and clinical development programs, as well as non-clinical studies and assessments of product candidates and programs, restructuring costs, implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, non-recurring revenue or expenses under any such agreement, the cost, timing and outcomes of regulatory compliance, approvals or other regulatory actions and general and industry-specific economic conditions, particularly as affects the pharmaceutical, biopharmaceutical or biotechnology industries in the United States. Period-to-period comparisons of Targacept’s historical and future financial results may not be meaningful, and investors should not rely on them as an indication of future performance. Fluctuating losses may fail to meet the expectations of securities analysts or investors. Failure to meet these expectations may cause the price of Targacept’s common stock to decline.

If Targacept’s stockholders sell a substantial number of shares of its common stock in the public market, Targacept’s stock price may decline.

Targacept’s current trading volumes are modest, and sales of a substantial number of shares of Targacept’s common stock in the public market, or the perception that these sales could occur, could cause the market price to decline. Such sales also might make it more difficult for Targacept to sell equity securities in the future at a

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time and at a price that it deems appropriate. The shares of Targacept’s common stock being registered in connection with the merger and this proxy statement/prospectus/information statement will be freely tradable without restriction under the Securities Act of 1933, as amended, or the Securities Act. As a condition to the closing of the merger, certain Catalyst securityholders entered into lock-up agreements, pursuant to which the securityholders have agreed not to, except in limited circumstances, sell, assign, transfer, tender, or otherwise dispose of, shares of Targacept common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, from the effective date of the merger until 120 days after the closing date of the merger. These Catalyst stockholders beneficially hold in the aggregate 109,250,736 outstanding shares of Catalyst common stock on an as-converted basis. All of the shares of Targacept common stock issuable to such holders in the merger may be sold in the public market 120 days after the effective time of the merger, limited only to the extent provided under applicable federal securities laws. Further, as a part of the Pre-Closing Dividend, Targacept will issue $37.0 million in aggregate principal amount of redeemable convertible notes. Those notes will be convertible at any time for 30 months following the closing into shares of Targacept at a conversion price of $1.313 per share. Conversion of these notes into stock of Targacept will cause dilution to other holders of Targacept common stock. In addition, Targacept may, in the future, issue additional shares of its common stock as compensation to its employees, directors or consultants, in connection with strategic alliances, collaborations, acquisitions or other transactions or to raise capital. Accordingly, sales of a substantial number of shares of Targacept’s common stock in the public market could occur at any time.

Following the merger, any delays in the timing for obtaining results from the clinical studies of the combined company could result in a decline in the value of the redeemable convertible notes.

Any delays in the timing of the combined company’s clinical studies may result in such clinical studies not being completed within the 30 month term of the notes, thereby eliminating the ability of the noteholders to make their decision on whether or not to convert their notes into common stock of the combined company based on the results of such clinical studies. This may result in the notes having less value or expiring unexercised.

Anti-takeover provisions in Targacept’s charter documents and provisions of Delaware law may make an acquisition more difficult and could result in the entrenchment of management.

Targacept is incorporated in Delaware. Anti-takeover provisions of Delaware law and Targacept’s charter documents may make a change in control or efforts to remove management more difficult. Also, under Delaware law, Targacept’s board of directors may adopt additional anti-takeover measures. The existence of the following provisions of Delaware law and Targacept’s restated certificate of incorporation and amended and restated bylaws could limit the price that investors might be willing to pay in the future for shares of Targacept’s common stock.

Targacept’s restated certificate of incorporation authorizes its board of directors to issue up to 5,000,000 shares of preferred stock and to determine the terms of those shares of stock without any further action by its stockholders. If the board of directors exercises this power to issue preferred stock, it could be more difficult for a third-party to acquire a majority of Targacept’s outstanding voting stock and vote the stock they acquire to remove management or directors.

Targacept’s restated certificate also provides staggered terms for the members of its board of directors, and that directors may be removed by stockholders only by vote of the holders of 66 2/3% of voting shares then outstanding. In addition, Targacept’s amended and restated bylaws do not permit stockholders to call special or annual meetings of stockholders, or to act by written consent without a meeting. These provisions may prevent stockholders from replacing the entire board in a single proxy contest, making it more difficult for a third-party to acquire control without the consent of the Targacept board of directors. These provisions could also delay the removal of management by the board of directors with or without cause.

As a Delaware corporation, Targacept is also subject to certain Delaware anti-takeover provisions. Under Delaware law, a publicly-held corporation may not engage in a business combination with any holder of 15% or

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more of its voting stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Targacept’s board of directors could rely on Delaware law to prevent or delay an acquisition. For a description of Targacept’s capital stock, see “Description of Targacept Capital Stock” beginning on page 285.

Holders of the redeemable convertible notes will be required to pay U.S. federal income tax on the notes even though the notes will not pay cash interest.

Because the notes do not pay cash interest, Targacept intends to treat the notes as issued with “original issue discount” for U.S. federal income tax purposes, and holders will be required to include the original issue discount in gross income on a constant yield to maturity basis. The application of the original issue discount rules to the notes is complex. See “The Merger—Material U.S. Federal Income Tax Consequences of the Ownership of the Redeemable Convertible Notes” beginning on page 105.

Holders of the redeemable convertible notes may be subject to tax if Targacept makes or fails to make certain adjustments to the conversion rate of the notes even though such shareholder may not receive a corresponding cash distribution.

The conversion rate of the notes is subject to adjustment in certain circumstances, including the payment of cash dividends. Adjustments to the conversion rate of the notes (or failures to make adjustments) that have the effect of increasing a noteholder’s proportionate interest in Targacept’s assets or earnings may in some circumstances result in a deemed distribution to for U.S. federal income tax purposes, notwithstanding the fact that such holder does not receive an actual distribution of cash or property. See “The Merger—Material U.S. Federal Income Tax Consequences of the Ownership of the Redeemable Convertible Notes” beginning on page 105. If a holder is a non-U.S. holder (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Ownership of the Redeemable Convertible Notes”), such holder may be subject to U.S. federal withholding tax in connection with such deemed distribution, which may be set off against subsequent payments of cash and common stock payable on the notes (or, in certain circumstances, against any payments on Targacept’s common stock). See “The Merger—Material U.S. Federal Income Tax Consequences of the Ownership of the Redeemable Convertible Notes” beginning on page 105.

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