Targacept Inc. stands to receive a $20 million milestone payment after partner AstraZeneca plc said it is moving ahead with AZD3480, a neuronal nicotinic receptor agonist, in Alzheimer's disease and schizophrenia.

The companies signed an exclusive licensing agreement a year ago for AZD3480 (also known as TC-1734). Targacept received an up-front payment of $10 million, but London-based AstraZeneca wanted to do a few additional studies before moving into larger studies, said Donald deBethizy, president and CEO of Winston-Salem, N.C.-based Targacept, which now is eligible to receive up to an additional $249 million in pre-commercialization milestones.

"This takes the uncertainty away from this deal," deBethizy told BioWorld Today. "We took what a lot of people on the outside saw as a big risk" since those additional studies could have resulted in a "no-go" decision by AstraZeneca, "but we had a lot of faith in the compound."

That news, plus the $20 million in nondilutive funding to Targacept, got Wall Street's attention Wednesday. The company's stock (NASDAQ:TRGT) jumped $1.46, or 19.6 percent, to close at $8.90.

AstraZeneca expects to start two parallel, large-scale Phase IIb studies of AZD3480 next year, one in Alzheimer's disease and the other in cognitive deficit in patients with schizophrenia, though it has not disclosed a specific development timeline. If the product reaches commercialization, Targacept would be entitled to stepped double-digit royalties on worldwide sales and has an option for co-promotion opportunities.

AZD3480, a selective alpha4 beta2 neuronal nicotinic receptor (NNR) agonist, is a small-molecule drug that has shown in early studies an ability to enhance cognition in patients suffering a variety of cognitive disorders. Beyond Alzheimer's and schizophrenia, the drug also demonstrated statistical significance in Targacept's Phase II study in age-associated memory impairment (AAMI), an indication that also might be of interest to AstraZeneca, which holds rights to the compound for all cognitive indications.

"We're hoping the regulatory environment improves" for AAMI therapies, deBethizy said, which it likely will as the baby boomer generation ages and there becomes "more and more pressure" for cognition-improving treatments in that area.

Licensing rights to AZD3480 was only one part of the companies' December 2005 agreement. Targacept and AstraZeneca also started a preclinical research collaboration to use Targacept's Pentad drug discovery technology to identify backup and follow-on compounds. AstraZeneca agreed to provide up to $26.4 million funding over the four-year research term. If any compounds emerge for development, Targacept could receive additional milestone payments and royalties, and also retains co-promotion options. (See BioWorld Today, Dec. 29, 2005.)

Separately, Targacept can offer AstraZeneca additional compounds that act on different NNR subtypes for cognitive disorders, such as TC-5619, an alpha7 NNR in late preclinical development. Though deBethizy said no decision has been made on whether to trigger the option on TC-5619, AstraZeneca "seems very interested" in that compound.

Targacept, which reported a third-quarter net loss of $4.9 million, or 25 cents per share, ended September with about $58.5 million in cash. That money was expected to get the company through the middle of 2008. Throw in the milestone payment from AstraZeneca, and the company now should have cash to "get us considerably beyond that," deBethizy said, while moving forward with other pipeline products.

Targacept reported positive results earlier this year from a Phase II trial of TRIDMAC, a combination of mecamylamine hydrochloride as an augmentation therapy to a common antidepressant, citalpram hydrobromide. Mecamylamine hydrochloride is the active ingredient in Inversine, Targacept's FDA-approved drug to manage moderately severe to severe essential hypertension and uncomplicated cases of malignant hypertension.

The company recently began a Phase II study with its alpha4 beta2 NNR activator, TC-2696, to evaluate the compound's analgesic effect following dental surgery. That trial is expected to conclude sometime in 2007.

In November, Targacept filed for approval to begin clinical testing of TC-2216, an oral compound for depression and anxiety that demonstrated activity "more potent than Prozac" in preclinical testing, deBethizy said, adding that "we expect to see proof of principle in Phase I."