LONDON (Reuters) - AstraZeneca (AZN.L) has thrown in the towel on an experimental antidepressant targeting nicotine receptors after the drug licensed from Targacept TRGT.O failed in two remaining clinical trials, thinning out its pipeline further.
While the news had been widely expected, since two previous Phase III studies also missed their targets, it hit shares in Targacept hard and the stock tumbled 24 percent by 1450 GMT. AstraZeneca was down just 0.2 percent.
Britain's second-biggest drugmaker will take an impairment charge of $50 million, representing the rest of the value of TC-5214 following a partial writedown late last year.
TC-5214 was initially deemed a potential multibillion-dollar-a-year seller as the first in a new class of medicines that work by calming neuronal nicotine receptors in the brain.
Scientists theorised that overstimulation of these receptors was associated with depression and AstraZeneca agreed to pay as much as $1.24 billion for rights to TC-5214 in 2009, including an upfront payment of $200 million, reflecting the high hopes for the product.
TC-5214 had, in fact, been one of the few bright spots in AstraZeneca's new-drug pipeline, following strongly positive results seen in a mid-stage Phase II study, which involved many patients in India.
The development program, however, was dealt a serious blow when the first two Phase III trials failed in November and December last year, prompting AstraZeneca to announce an initial partial impairment charge of $96.5 million on December 20.
Now the idea of using TC-5214 as an add-on therapy for patients with depression has been abandoned completely.
"Based on the totality of the results, AstraZeneca and Targacept will not pursue a regulatory filing for TC-5214 as an adjunct treatment for patients with MDD (major depressive disorder)," the two companies said on Tuesday.
Targacept, a small U.S. drugmaker that began as part of R.J. Reynolds Tobacco, was hit harder than its larger partner by the ending of the project, since TC-5214 was its most advanced drug.
But CEO Donald deBethizy said Targacept had been "scrutinizing all aspects of our business to prepare for this contingency" and would announce plans for dealing with the setback by the end of April. He noted that the biotech had a cash cushion of more than $225 million.
The setback leaves AstraZeneca with only one major Phase III asset that is viewed by analysts as a potential blockbuster - fostamatinib for rheumatoid arthritis. Clinical trial results for the oral medicine are expected in the second half of 2012.
The Anglo-Swedish drugmaker finds itself in a tight spot because its thin pipeline coincides with looming loss of patent protection on its existing top sellers.
Faced with the prospects of a steep fall in both sales and profits in the years ahead, AstraZeneca is actively pursuing bolt-on acquisition opportunities, having bought nothing for more than $400 million since its poorly received purchase of MedImmune for $15.6 billion in 2007.
"If the pipeline continues to fail to deliver products to the market, we see the risk of a larger scale M&A deal as becoming a more realistic possibility in the near-to-medium term," said Navid Malik, an industry analyst at Cenkos Securities.
Later this month, U.S. and European patents will expire on Seroquel, AstraZeneca's hugely profitable antipsychotic drug, while Nexium, for acid reflux, faces U.S. generics in 2014 and cholesterol fighter Crestor goes off patent in 2016.
Editing by William Hardy and Mike Nesbit