Targacept Inc TRGT.O shares lost nearly a third of their value before the bell on Tuesday, a day after the company said it would stop developing its experimental schizophrenia drug following disappointing trial results.
The drug, TC-5619, one of the company's most advanced treatments, failed to reduce symptoms associated with schizophrenia in a mid-stage study.
The trial was testing the drug on 477 schizophrenia patients with stable psychotic symptoms who were on atypical antipsychotic medication, over a period of 24 weeks.
"These negative results, in our opinion, take out the key asset from Targacept pipeline," Deutsche Bank analysts said in a note, maintaining their "hold" rating on the stock.
The company, which was also testing the drug for use in Alzheimer's disease, will not develop it for either indication, it said in a statement.
Targacept is also testing drugs for the treatment of overactive bladder syndrome and diabetic gastroparesis.
Deutsche Bank analyst Robyn Karnauskas slashed her price target on the stock by $8 to $4, citing the riskiness of the company's remaining experimental drugs under development.
Individuals who suffer from schizophrenia, a chronic form of psychosis, can experience a combination of different symptoms. Targacept's drug was aimed at reducing the so-called "negative" symptoms.
Negative or deficit symptoms include social withdrawal and a lack of motivation, while "positive" symptoms include hallucinations and delusions.
Winston-Salem, North Carolina-based Targacept were down 32 percent at $4.05 in premarket trading on Monday.
(Reporting by Natalie Grover in Bangalore; Editing by Saumyadeb Chakrabarty)