An experimental antidepressant from AstraZeneca Plc and Targacept Inc failed to meet the goal of changing a key depression rating score in the first of a series of pivotal clinical trials, a setback for both firms.

The initial Phase III European trial is a bellwether for the remaining studies on TC-5214, which was developed by Targacept following research into the effects of nicotine on the brain.

Targacept shares plunged around 60 percent in pre-market Nasdaq trading on Tuesday, following the announcement by both companies, while AstraZeneca was down 4 percent in London.

TC-5214 -- viewed by analysts as a high-risk, high-reward project -- is designed to work in a novel way by modulating neuronal nicotinic receptors in the brain. Over-stimulation of these receptors is thought to be associated with depression.

AstraZeneca agreed in 2009 to pay as much as $1.24 billion (771.48 million pound) for rights to the drug, including an upfront payment of $200 million, and TC-5214 has been one of the few potential bright spots in its pipeline.

TC-5214 is being assessed as an add-on therapy for patients who do not do well on standard antidepressants. It would compete with drugs like AstraZeneca's older Seroquel and could therefore help business once Seroquel loses patent cover.

The setback will dent confidence in AstraZeneca's line-up of new drugs, although many analysts have avoided banking too much on the medicine's success. Consensus forecasts for 2016 sales stand at a fairly modest $384 million, according to Thomson Reuters Pharma.

The TC-5214 setback offset positive news that the company's heart drug Brilinta has been included in new U.S. guidelines on drugs that can be used in patients receiving coronary stents.

Savvas Neophytou of Panmure Gordon said the setback for TC-5214 was not a big surprise. AstraZeneca's share price, however, was suppressed because of its perceived weakness in executing its pipeline delivery, so news of another failed Phase III trial will not help, he said.

Neophytou remains a buyer of the stock, which is trading at a discount of more than 26 percent to larger British rival GlaxoSmithKline Plc.

Mark Clark of Deutsche Bank said it was still possible other studies would be positive, since depression trials are notoriously variable in outcome. Pfizer's Pristiq was approved on the basis of only three of nine studies meeting the primary endpoint and another two meeting secondary endpoints.

But Clark, who rates AstraZeneca a hold, is not very optimistic on TC-5214 and said the initial failure highlighted the fact AstraZeneca had limited pipeline assets to counter looming patent losses on its existing top-selling drugs.

TOBACCO HISTORY

The drug is the product of lengthy research at Targacept, a small U.S. drugmaker that began life as part of R.J. Reynolds Tobacco Co and has for years been using its understanding of nicotine to develop experimental treatments for depression and other psychiatric disorders.

The overall Phase III trial programme for TC-5214 consists of four studies for which all results are expected by the first half of 2012. The European study, Renaissance 3, is the first of these four studies. There is also a fifth long-term safety study that will last longer.

An AstraZeneca spokeswoman said the two partners would have to look at the results from the other three shorter trials before finalising their intentions for TC-5214. Assuming the other data is favourable, the current plan is to file the medicine for approval in the United States in the second half of 2012, with a filing in Europe targeted for 2015.

TC-5214 is a tweaked version of mecamylamine, a drug introduced in the 1950s to treat high blood pressure. Researchers at the University of South Florida later began testing mecamylamine in the hope it would help children with Tourette's syndrome. It didn't, but research showed that it seemed to lessen depression in those children.

Targacept acquired a licence to the drug and began developing it as a treatment for depression. Initial results have shown promise, but many depression drugs fail in late-stage trials, especially those that address new molecular targets.

Most new depression drugs today work by increasing the chemical serotonin, or serotonin and norepinephrine, in the brain. TC-5214 targets a different set of receptors.

(Reporting by Ben Hirschler; Editing by Hans-Juergen Peters and Sophie Walker)