AstraZeneca (AZN) and Targacept (TRGT) have taken a significant step in the multi-billion dollar antidepressant market. The two companies entered into a collaboration and license agreement regarding the development of a drug targeted towards major depressive disorder (MDD). The drug, TC-5214, Targacept’s late-stage investigational product, recently completed a phase IIb clinical trial.

As per terms of the agreement, AstraZeneca will make a $200 million upfront payment to Targacept. In addition, AstraZeneca will pay another $540 million on the achievement of certain regulatory as well as first commercial sale milestones. Terms of the deal are quite attractive for Targacept — while the company has the potential to receive up to $500 million if some specified sales milestones are achieved, it also has the potential to receive double-digit royalties on net sales worldwide. Targacept has retained an option to co-promote the drug to a limited target physician audience in the U.S.

The two companies will jointly design a global phase III clinical program with the target of initiating it in mid-2010. They intend to file a new drug application (NDA) with the US Food and Drug Administration (FDA) in 2012. TC-5214 is being developed as a drug along with antidepressant therapy in adults suffering from MDD who are no longer responding to first-line antidepressant treatment. The drug will also be studied in a phase II trial exploring its effectiveness as a monotherapy for MDD.

While AstraZeneca will be responsible for 80% of the initial cost of the global development program, Targacept will be responsible for the rest. In addition, AstraZeneca will assume responsibility related to the commercialization of TC-5214.

This is not the first agreement between the two companies. In 2005, they entered into a global collaboration focused on cognitive disorders. Under the agreement, three products are currently in clinical development — AZD3480 for attention deficit hyperactivity disorder (ADHD), AZD1446 for Alzheimer’s disease, and TC-5619 for cognitive dysfunction in schizophrenia.

MDD is a common illness affecting approximately 42 million people worldwide. Successful commercialization of the drug would enable both AstraZeneca and Targacept to target the global antidepressant market, which is valued at over $20 billion.

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