AstraZeneca has bought rights to an experimental antidepressant from Targacept in a deal worth up to $1.24 billion, boosting its pipeline and slapping a big endorsement on its U.S. biotech partner's drug.
Targacept shares jumped more than 9 percent to $25.71 in pre-market trade on Thursday. The stock has already rocketed from below $3 since July, following good mid-stage test results with the new drug TC-5214 and hopes for a lucrative deal.
The latest tie-up represents a deepening of relations between AstraZeneca and Targacept. The two companies also have a deal on cognitive disorders dating back to 2005.
AstraZeneca badly needs new medicines to replace older ones like heartburn treatment Nexium and Seroquel for schizophrenia that will soon lose patent protection, and it has identified TC-5214 as a possible winner.
Analysts believe the medicine has the potential to sell more than $1 billion a year, assuming it successfully completes clinical trials.
The opportunity to improve treatment in depression is a large one, both commercially and in terms of benefits for patients, AstraZeneca Chief Executive David Brennan said.
The antidepressant market is currently dominated by serotonin reuptake inhibitors, such as Eli Lilly's now off-patent Prozac, but these drugs work well in less than half the population.
TC-5214, which will enter final Phase III clinical trials in mid-2010, is a nicotinic channel blocker that works in a different way to tackle major depression.
Targacept was spun out of the research arm of R.J. Reynolds Tobacco in 2000 and specialises in developing drugs that affect similar pathways within the brain as nicotine.
The Winston-Salem, North Carolina, firm will receive $200 million upfront, once the deal wins U.S. antitrust clearance, and up to an additional $540 million if certain development, regulatory and first commercial sale milestones are achieved.
It is also entitled to up to $500 million if further-off sales milestones are hit, as well as stepped double-digit royalties on net sales worldwide.
Targacept has an option to co-promote TC-5214 to a limited target physician audience in the United States.
Major depressive disorder affects an estimated 42 million people worldwide and the global market for antidepressants is valued at more than $20 billion, even though many of the products used to treat it are available as cheap generics.
TC-5214 is being developed initially as an adjunct to existing therapy in adults who do not respond adequately to standard treatment. But the companies also plan a Phase II study of the medicine as monotherapy.
Shares in AstraZeneca were 0.6 percent higher at 27.81 pounds at 1315 GMT, slightly outperforming a flat European drugs sector .SXDP.
(Editing by Greg Mahlich, Hans Peters and Karen Foster)