UPDATE 2-Targacept's depression drug meets mid-stage trial goals

* Depression drug meets all goals in mid-stage trial

* One adverse event of seizure seen in the trial

* Shares rise 123 pct

By Esha Dey

BANGALORE, July 15 (Reuters) - Targacept Inc (TRGT.O) said its experimental depression drug, TC-5214, that was being tested as an augmentation treatment for major depressive disorder, met all the goals of a mid-stage trial, prompting a more than two-fold rise in its stock price.

Patients who received the drug along with citalopram, a common antidepressant, showed a statistically significant improvement in depression according to a standard depression rating scale, as compared to patients taking a dummy drug along with citalopram.

The study was done in patients who did not respond adequately to first-line treatment with citalopram alone, the company said.

Citalopram belongs to a class of antidepressants called selective serotonin reuptake inhibitors, or SSRIs, which affect a message-carrying brain chemical called serotonin.

"We view this as a huge positive for Targacept, as almost half of patients with major depressive disorder (MDD) fail therapy with an SSRI," Natixis Bleichroeder analyst Jon LeCroy said.

LeCroy, who reiterated his "buy" rating and $7.50 price target on the stock, said he currently values the TC-5214 program at $40 million.

Wedbush PacGrow analyst Kimberly Lee said she expects peak sales of about $60 million to $65 million from the drug.

However, there was one serious adverse event in the trial that the investigators considered to be related to study drug -- a seizure experienced by a patient.

Natixis' LeCroy said that the adverse event might be problematic, but also added that were seizures in the mid-stage trial of lorcaserin, another serotonin activator being developed by Arena Pharmaceuticals Inc (ARNA.O) to treat obesity, that did not reappear in the late-stage trials.

Targacept's drug also met the secondary efficacy goals of the trial that included separate assessments for depression, irritability, disability, cognition, severity of illness and global improvement.

"It is particularly compelling that the superiority of TC-5214 as augmentation to citalopram over citalopram alone was first seen after only two weeks and grew steadily over the trial's last six weeks, culminating in remission for twice as many subjects in the TC-5214 group," said Madhukar Trivedi, one of the principal investigators for the trial.

The drug also showed a favorable tolerability profile, with the most frequent adverse events being headache, dizziness and constipation.

Targacept, which is trying to get a partner for the drug, expects late-stage trials to start in the second quarter of 2010.

Wedbush's Lee expects a "potentially large pharma partnership for TC-5214" to occur by year-end. She raised her fair value estimate on the stock to $4 from $3, and maintained her "neutral" rating.

The company, which develops drugs that are focussed at treating central nervous system diseases and disorders, had also seen a spurt in its stock value earlier this month after its licensing partner AstraZeneca (AZN.L) agreed to further develop its attention deficit/hyperactivity disorder (ADHD) drug.

Shares of the company were trading up 114 percent at $6.55 in morning trade on Nasdaq. They had earlier touched a high of $6.82 during the session. (Editing by Jarshad Kakkrakandy)