Glaxo, Targacept sign $1.5 bln nicotine drug deal

LONDON Fri Jul 27, 2007 10:03am EDT

LONDON (Reuters) - GlaxoSmithKline Plc (GSK.L) aims to harness the positive effects of nicotine through a drug development alliance potentially worth more than $1.5 billion with U.S. biotech firm Targacept Inc. (TRGT.O).

Shares in Targacept, which was spun out of the research arm of R.J. Reynolds Tobacco in 2000, jumped 14 percent to $10.25 in early trade on the Nasdaq on Friday after the two companies unveiled the deal.

The goal is to develop drugs that affect similar pathways within the brain as nicotine to treat pain and a range of other disorders.

Nicotine drugs have had a chequered history but the field received a boost last year with the approval of Pfizer Inc.'s (PFE.N) smoking cessation product Chantix.

The agreement gives Europe's biggest drugmaker access to Targacept's neuronal nicotinic receptor (NNR) compounds, including an experimental drug in mid-stage Phase II clinical trials for acute post-operative pain.

Glaxo will pay $35 million upfront to Targacept, which includes an investment of $15 million for the purchase of 1.3 million Targacept common shares, the companies said.

Targacept, which is based in Winston-Salem, North Carolina, is also eligible to receive up to $1.5 billion in payments from London-based Glaxo, depending upon the achievement of certain milestones.

The deal underscores the determination of Glaxo, like many other big drugmakers, to secure promising new medicines discovered by smaller biotech companies.

In addition to the most advanced pain product, the tie-up also gives Glaxo access to other Targacept drug discovery programs in smoking cessation, obesity, addiction and Parkinson's disease.

The alliance brings Glaxo alongside its British rival AstraZeneca Plc (AZN.L), which already has a licensing deal with Targacept for Alzheimer's disease that has reached Phase IIb development.

FUTURE ACQUISITIONS?

Targacept Chief Executive Donald deBethizy said the new deal would accelerate development of the company's compounds and increase its strategic flexibility.

He aims to focus on the two big deals for now but said there was scope for other alliances or, possibly, acquisitions of smaller companies in future.

"We'll take a look at where our stock price goes and see where our value goes to over the next six to 18 months, and then look at how else we can grow this company," he told Reuters in a telephone interview.

NNRs play a role in modulating synaptic neurotransmission but the key to their successful development as drugs is making them highly specific, so they do not cause unwanted side effects.

"The target is becoming much more popular, so more people are starting to move into this field," deBethizy said.

Other companies with programs in the area include U.S.-based Memory Pharmaceuticals Corp. MEMY.O and France's Sanofi-Aventis SA (SASY.PA).

Glaxo is linking up with Targacept through its Center of Excellence for External Drug Discovery, which was recently set up specifically to clinch deals with external biotech companies.

(Additional reporting by Supantha Mukherjee in Bangalore)

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