Targacept depression drug: high risk, high reward
By Toni Clarke
Targacept Inc, a small drugmaker that began life inside the bowels of R.J. Reynolds Tobacco Co, has for years been using its understanding of nicotine to develop experimental treatments for depression, schizophrenia and, yes, smoking cessation.
Now it is poised to release data from a crucial trial of its depression drug, TC-5214, an event that, in the view of Leerink Swann analyst Joshua Schimmer, represents "one of the most important catalysts in biotech through year-end."
Targacept, which is developing the drug with Anglo-Swedish drugmaker AstraZeneca Plc, could see its stock rise by 100 to 200 percent if the results are positive, Schimmer said in a recent research report, and fall as much as 50 percent if they are negative. He gives the trial, the first of five late-stage studies, a 65 percent probability of success.
TC-5214 is thought to work by modulating neuronal nicotinic receptors in the brain. Overstimulation of these receptors, or proteins, is thought to be associated with depression.
A mid-stage trial showed that when TC-5214 was given to patients who did not respond well to citalopram, an antidepressant sold under the name Celexa, patients experienced a significantly greater lessening of their depression than those who took citalopram plus a placebo.
The key now is whether those results can be replicated in a bigger, phase III trial. Targacept will announce the results of the first such trial by the end of the year. Investors are most eagerly awaiting this data as it is expected to offer clues as to whether the other four trials, whose results are expected in the first half of next year, will be successful.
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 license to the drug and began tweaking and 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.
"It may be difficult for them to replicate their Phase II results with a Phase III trial because it's a new mechanism of action and therefore very high risk," said Natalie Taylor, an analyst at the research firm Decision Resources.
Indeed, "short" interest in Targacept has doubled since January. By mid-September, some 5.5 percent of Targacept's shares -- a notable but not overwhelming amount -- had been sold "short" by investors betting the stock will fall.
NEW CLASS OF DRUGS
Most new depression drugs today work by increasing the chemicals serotonin, or serotonin and norepinephrine, in the brain. TC-5214 targets a different set of receptors, known as neuronal nicotinic receptors. According to Patrick Lippiello, co-founder of Targacept, the drug regulates an overactivity in the brain of the chemical messenger acetylcholine. It blocks the activity of its receptors to bring their activity down.
Ironically, modulating neuronal nicotinic receptors has been shown in some cases to increase suicidality. The first drug to modulate these receptors was Pfizer Inc's anti-smoking drug Chantix, which was approved in 2006.
Chantix, however, has been plagued by safety concerns, including reports of a heightened risk of heart attack and of suicidal thinking, and while it appears to help some people stop smoking it is unclear exactly how the drug works.
"We don't really know the mechanism except that it changes the activity of the nicotinic receptors," said Stephen Heinemann, a professor and scientist at the Salk Institute for Biological Studies and a pioneer in the identification and cloning of the nicotinic receptors.
It seems clear that nicotine, which activates the same receptors, can have antidepressant effects and boost cognition, Heinemann said. It is thought that many smokers and schizophrenics use cigarettes to "self-medicate."
TC-5214 targets the same receptors but works in a different way and appears to have a more benign safety profile as well as a greater antidepressant effect.
"My prediction is TC-5214 will have very few side effects," said Decision Resources's Taylor.
Harry Tracy, an industry consultant and publisher of NeuroPerspective, a monthly publication focusing on central nervous system disorders, argues that it doesn't really matter whether the drug's mechanism of action is understood -- as long as it works and is relatively safe.
"I am actually pretty confident about the Phase III trial," he said, of TC-5214. "Of all the programs I follow, this is one where I think the rationale and data hold together pretty well."
Targacept, which is based in Winston-Salem, North Carolina, is developing TC-5214 with AstraZeneca Plc, which is 2009 agreed to pay as much as $1.24 billion for rights to the drug, including an upfront payment of $200 million.
TC-5214 is one of the few potential bright spots in AstraZeneca's pipeline. It is initially being designed as an add-on therapy for patients who have failed to respond to existing depression treatments, but the companies are also testing it as a single agent in patients who fail to respond adequately to a prior therapy.
Analysts expect the drug, if successful, to generate more than $1 billion a year as an adjunctive therapy; much more if approved for wider use.
If used as an add-on therapy, TC-5214 would compete with Abilify, made by Bristol-Myers Squibb Co and AstraZeneca's own Seroquel XR. The two drugs are atypical antipsychotics, a class of drugs initially developed to treat schizophrenia.
Physicians are reluctant to use antipsychotics in patients with depression since they can have serious side effects. Abilify, among other things, can cause restlessness, while Seroquel can cause significant weight gain.
If TC-5214 fails, it would be, at most, a black eye for AstraZeneca, which generated more than $33 billion in sales last year. The stakes are far higher for Targacept, which has a market value of roughly $500 million and does not yet have a product on the market.
A positive result would give further credence to the science behind the company's broader pipeline of experimental products, which include treatments for schizophrenia, attention deficit hyperactivity disorder and Alzheimer's disease.
Targacept grew out of R.J. Reynold's extensive research into the pharmacology and toxicology of nicotine. Donald deBethizy, Targacept's chief executive, was a toxicologist who was hired by RJR in the mid-1980s to work on safer cigarettes in the company's R&D department. He also managed a separate basic research program to study the biological effects of nicotine, later to become known as the Nicotine Research and Analog Development program (NRAD).
The scientists within NRAD gradually began to expand their research beyond nicotine, and to develop compounds that could capture the positive benefits of nicotine while dialing out the negative impact on heart rate and blood pressure. They discovered that compounds targeting nicotinic receptors appeared to have the potential for therapeutic benefit in a variety of diseases. But by the mid-1990s, "the demonization of the tobacco industry began," said deBethizy, placing tobacco companies on the defensive.
RJR retrenched and lost interest in funding a pharmaceutical discovery business. It decided to spin NRAD off as an independent company. DeBethizy, who at that time was RJR's overall vice president of research and development, stepped in to head NRAD, which by 1997 had dozens of patents in an industry entirely unrelated to the sale of tobacco.
NRAD renamed itself Targacept and became a wholly-owned subsidiary of RJR. By the middle of 2000 it had raised $30.4 million in venture capital funding, and in August its spin-off from RJR was complete. It first sold shares to the public in 2006 at $9 each.
By March this year the shares had risen to a high of about $30. Since then, they have dropped almost 50 percent after GlaxoSmithKline dropped out of a partnership and AstraZeneca failed to exercise its option to help develop Targacept's schizophrenia drug TC-5619, even though it met the main goal of a mid-stage trial.
For the time being, investors and physicians alike are focused on TC-5214.
"Developing drugs based on different neural pathways is really important because most of the drugs we have now are derived from the same neural pathways," said Dr. Srijan Sen, assistant professor in the department of psychiatry at the University of Michigan, and a specialist in the genetics of depression. Still, he said, "I'm skeptical."
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