Now that AstraZeneca (NYSE: AZN) has determined it won't license Targacept's compound for schizophrenia, the drug development company is preparing to raise up to $75 million to develop the drug candidate on its own.

Winston-Salem, North Carolina-based Targacept (Nasdaq: TRGT) set the dollar target in a preliminary prospectus filed Tuesday with the U.S. Securities and Exchange Commission. The document updates a shelf registration statement Targacept filed last December that laid the groundwork to raise up to $150 million to develop its drug candidates, including TC-5619, a compound that has completed two separate mid-stage clinical trials in two indications: cognitive dysfunction in patients with schizophrenia and attention-deficit/hyperactivity disorder, or ADHD.

Targacept hoped that drug partner AstraZeneca would be financing the clinical development of the compound. Under a 2005 partnership agreement, AstraZeneca had the option to license the compound and pick up the R&D from Targacept. Had AstraZeneca licensed the compound, a $30 million milestone payment to Targacept would have been triggered and Targacept stood to gain up to $212 million in additional regulatory and commercialization milestones.

Following TC-5619′s failure in phase 2 trials in the ADHD indication, AstraZeneca said earlier this month it would not license the compound. Targacept retained the rights to develop the drug candidate, and in securities filings, the company says that net proceeds from the stock offering will be used to develop TC-5619 and other clinical-stage product candidates. The company also hinted at additional plans.

"We may also use a portion of the net proceeds from this offering to acquire or invest in complementary businesses, technologies, product candidates or other intellectual property," Targacept said in the filing.

Deutsche Bank Securities is the book-running manager for the stock offering. Lazard Capital Markets, Leerink Swann and Oppenheimer & Co. are co-managers.

AstraZeneca's decision not to license TC-5619 did not end the partnership with Targacept. Another compound, TC-5214, is being studied with AstraZeneca as an adjunct treatment for major depressive disorder. Targacept has also said it plans on studying TC-5619 as a potential Alzheimer's disease treatment. Under the agreement with AstraZeneca, AstraZeneca is responsible for conducting and funding studies to advance TC-5619 into mid-stage trials for Alzheimer's disease.

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