Why AstraZeneca's $1B Antidepressant Bet Faces Big Risks

AstraZeneca (AZN) is doubling down on major depression with a $1.2 billion deal for TC-5214, a molecule in development at Targacept (TRGT). AZ's current antipsychotic/antidepressant blockbuster, Seroquel, is still growing strong. Q3 sales were $1.2 billion, up 12 percent, and up 14 percent for the first nine months of the year. With Seroquel going off-patent around 2012, the Targacept deal seems like a good bet for AZ.

Or does it?

The market will be a dangerous place for expensive branded antidepressants by the time TC-5214 is launched. AZ may be throwing $1.2 billion into strong headwinds.

Seroquel's growth comes despite a drumbeat of negative headlines about the drug stemming from lawsuits claiming that it causes weight gain and diabetes. Those headlines have had a cost -- AZ's legal bill on Seroquel has topped $1.1 billion.

The FDA is looking to tighten guidelines on antipsychotics for kids, Pharmalot reports. These drugs are not approved for children but doctors prescribe them anyway. Weight gain and high blood pressure have been a result. AZ actually funded research into the use of antipsychotics in preschoolers. So that section of the market could soon be shrinking, not increasing.

More seriously, the market will be riddled with cheap generic copies by the time TC-5214 arrives. $1 billion will be wiped off sales, according to Decision Resources:

... the market for atypical antipsychotic drugs will decrease from last year's figure of $6.3 billion to $5.2 billion by 2013 in the United States, United Kingdom, France, Italy, Spain and Japan as several established antipsychotic drugs lose patent protection.
Those drugs will include Johnson & Johnson subsidiary Janssen's Risperdal Consta (risperidone) and Invega (paliperidone), AstraZeneca's Seroquel (quetiapine fumarate), Bristol-Myers Squibb's and Otsuka Pharmaceutical's Abilify (aripiprazole), Eli Lilly & Co.'s Zyprexa (olanzapine) and Pfizer's Geodon (ziprasidone hydrochloride).

Those are just the new expiries. Older antidepressants such as Prozac, Effexor, Paxil and Wellbutrin went generic years ago, and are still available for doctors who want something cheap with a longer track record to prescribe. So are antipsychotics such as Haldol (which AZ once claimed was inferior to Seroquel when its own data suggested the opposite).

Yet AZ continues to throw money into the category. The company is currently running commercials for Seroquel on late night cable. The ads feature patients who feel invisible to the world around them (they are depicted as camouflaged against their backgrounds, which include a supermarket shelf, a movie theater and a living room sofa). The voiceover recites "coma and death" among the pill's side effects.

For a look at the potential future of TC-5214, AZ execs might want to check out Shire's Q3 2009 earnings. Although the drugs are not comparable, the market conditions are: Shire's Adderall XR ADHD blockbuster went generic and to combat the loss Shire (SHPGY) introduced a similar new product, Vyvanse. Adderall once sold nearly $300 million per quarter. Now, Adderall is in freefall. Sales collapsed 74 percent to $71 million. Vyvanse pulled in only $129 million -- not enough to replace the losses.

Image: TC-5214, according to a Targacept SEC filing.

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