Key AZ/Targacept depression drug flunks first Phase III test

The high-profile depression drug TC-5214 has failed the first in a string of Phase III studies, dealing AstraZeneca's struggling R&D operation another stinging setback and walloping Targacept with a meltdown in its share value this morning.

Two years ago AstraZeneca ($AZN) paid Targacept $200 million upfront and promised another billion dollars in milestones to in-license the drug from the biotech, an R.J. Reynolds spinout which had used the science of nicotine to develop a product that would tamp down over-stimulated nicotine receptors in the brain, which are believed to play a role in depression. Tackling a new pathway to treating the disease was always risky, as is anything new in the depression field, but the market opportunity for an add-on treatment would be enormous.

Investors were in an unforgiving mood this morning, though. Targacept ($TRGT) shares plunged 50% in pre-market trading and even AstraZeneca's shares felt the impact of the trial failure.

AstraZeneca had been so impressed by the drug's potential it committed a budget for five late-stage trials. Renaissance 3 was the first to deliver data and its failure leaves the entire program under a dark cloud. In a short release, AstraZeneca simply noted that "the study did not meet its primary endpoint of change on the Montgomery-Asberg Depression Rating Scale after eight weeks of treatment with TC-5214 as compared to placebo."

AstraZeneca is committed to seeing out the next three Phase III studies, which will read out in the first half of next year. The pharma company had been expected to file for an approval in the second half of 2012.

- here's the press release
- read the Reuters story