Staff Writer

The deal for Phase II adjunctive depression candidate TC-5214 with Targacept Inc. gives AstraZeneca plc backup if things go poorly for Seroquel-XR in the U.S. and leaves the biotech partner in an enviable cash position, though Wall Street mysteriously failed to rejoice over the second hookup between the two firms.

Winston-Salem, N.C.-based Targacept's shares (NASDAQ:TRGT) closed Thursday at $22.06, down $1.45, after trading as low as $19.41, possibly because investors were disappointed that AstraZeneca, of London, chose not to acquire its partner and signed another collaboration instead.

"A long stretch without meaningful catalysts" lies ahead of Targacept, too, as Leerink Swann analyst Joshua Schimmer pointed out, but for many onlookers, this didn't adequately explain the stock drop, especially given the handsome terms to which AstraZeneca conceded.

"We've never had leverage like this in a deal," said J. Donald deBethizy, Targacept's president and CEO.

AstraZeneca is paying $200 million up front, above what most analysts expected, with about $1 billion in development and commercial milestone payments, $540 million of which Targacept could collect before the would-be blockbuster TC-5214 even starts selling.

Tiered double-digit royalties on eventual sales are included; Oppenheimer analyst Bret Holley guesses that 20 percent is "conservative," and deBethizy would not comment. Eighty percent of global development and all of the commercialization costs will be paid by AstraZeneca, with Targacept holding an option to co-promote to certain specialists in U.S.

In October, Targacept detailed strongly positive Phase IIb news with TC-5214, a neuronal nicotinic receptor antagonist. Patients safely gained a six-point improvement (13.75 points) over those treated with the add-on placebo (7.75 points). But the first news of the trial's results hit over the summer, and that's when Targacept began getting serious about finding a partner. (See BioWorld Today, Oct. 19, 2009, and July 16, 2009.)

Targacept-watchers have been anticipating a deal, and AstraZeneca seemed a logical choice for two reasons.

First, the pharma firm is a familiar entity, since it already had an arrangement with Targacept for the NNR compound TC-1734 against cognitive disorders. Renamed AZD3480, the compound is being developed to treat attention deficit hyperactivity disorder, and more Phase II trials are expected to start next year. AZD1446, also part of the earlier pact, is due to enter Phase II trials in Alzheimer's disease in 2010 as well. (See BioWorld Today, Dec. 29, 2005.)

Second, AstraZeneca's Seroquel-XR (quetiapine), approved for bipolar disorder and schizophrenia, has yet to win labeling from the FDA for depression, so TC-5214 has "high strategic importance" for the pharma giant, as Holley noted in a research report.

DeBethizy said Seroquel-XR, an atypical antipsychotic agent, has "a well-described side effect profile that is not likely to get much traction in primary care," where AstraZeneca and Targacept plan to position TC-5214 as a second-line treatment.

AstraZeneca recognized that Targacept's drug would "out-compete Seroquel in the augmentation market, and gain traction second-line - an excellent way to have two shots on goal in two different segments of the market," deBethizy said.

Another atypical antipsychotic, Abilify (aripiprazole) from Tokyo-based Otsuka Pharmaceutical Co. Ltd. and New York-based Bristol-Myers Squibb Co., was granted a label in the U.S. as an add-on for patients getting selective serotonin reuptake inhibitors, though the compound has run into regulatory trouble overseas. (See BioWorld Today, Dec. 1, 2009.)

Abilify has "been on the market for a while" and Seroquel-XR probably could take market share from it, said Alan Musso, Targacept's chief financial officer, but "the differentiated opportunity [in TC-5214] is recognized."

DeBethizy said that coming up with a good depression drug is about more than avoiding the side effects with the likes of Seroquel-XR, Abilify and SSRIs, widely believed by laypersons to work well. "That's a misconception," he said. "As much as people believed that we've made progress with antidepressants, psychiatrists are very frustrated" by the lack of uniformly effective therapies.

The lack was demonstrated a few years ago by the National Institutes of Mental Health's Sequenced Treatment Alternatives to Relieve Depression trial, known as STAR*D, a landmark study that found that about two-thirds of medicated patients responded inadequately to much-prescribed drugs. "Why else would you have atypical antipsychotics getting labels for depressive disorder, with their side effect profiles?" deBethizy said.

Though a logical choice, AstraZeneca was not the only suitor, and deBethizy said the deal happened in five months rather than the customary nine to 12 months mainly because of the competitive process Targacept set up. An information memo was sent to about 15 companies and, "based on their responses, we selected a large subset to come in and do due diligence," he told BioWorld Today.

"They brought in scores of people," deBethizy recalled. "Our plan was to take this [list] down to three companies that we thought had the best ability for exploiting the asset, and then drive them to contract, which is what we did."

Also in Targacept's pipeline in TC-5619, for which Phase II results in cognitive dysfunction associated with schizophrenia are expected in late 2010 or early 2011. The firm has an NNR deal for pain and other disorders with London-based GlaxoSmithKline plc, and products covered under that alliance are expected to start Phase I testing next year. (See BioWorld Today, July 30, 2007.)

Published  December 4, 2009