NEW YORK (AP) ¿ Targacept Inc. on Thursday struck a deal potentially worth more than $1 billion to develop a depression drugs with AstraZeneca PLC, one of the world's largest drugmakers.

Under terms of the agreement, AstraZeneca will pay Targacept $200 million upfront upon effectiveness of TC-5214, Targacept's late-stage investigational treatment for major depressive disorder, also known as MDD.

Targacept will get up to an additional $540 million if specified development, regulatory, and early sales milestones are achieved. In addition, the company based in Winston-Salem, N.C., is eligible to receive up to $500 million if further sales-related milestones are achieved as well as "significant stepped double-digit" royalties on worldwide sales.

London-based AstraZeneca will handle 80 percent of research costs and all commercialization costs, and will take over manufacturing and supply agreements with third parties.

TC-5214 is a nicotinic channel blocker that is thought to treat depression by acting on neuronal nicotinic receptors, or NNRs, according to Targacept. Targacept says NNRs are found on nerve cells throughout the nervous system and regulate nervous system activity. The companies plan to test the drug in a large-scale pivotal trial next year and aim to seek approval from the Food and Drug Administration in 2012.

The companies want to market TC-5214 to patients who are not successfully treated by the most common type of depression drugs, which are called selective serotonin reuptake inhibitors.

Targacept and AstraZeneca are already collaborating on treatments for attention deficit/hyperactivity disorder, Alzheimer's disease and cognitive dysfunction in schizophrenia.

The companies may negotiate a partnership to research other NNR drugs.

Targacept reported successful mid-stage trial results for TC-5214 on July 15. Its shares doubled that day, and in total their value has increased more than sevenfold since then, partly because analysts anticipated a partnership with a major drug company. In morning trading, Targacept shares lost $2.31, or 9.8 percent, to $21.20.

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