Shares in biopharmaceutical firm Targacept plunged by nearly a third Monday morning after the firm said a crucial drug candidate failed in a Phase II clinical trial.

The compound, TC-2696, was one of two key drug candidates Targacept (Nasdaq: TRGT) identified as part of a huge development deal with GlaxoSmithKline (NYSE: GSK) earlier this year. The package was worth as much as $1.5 billion, according to Targacept.

However, TC-2696 failed to meet a key endpoint in the trial in which 181 patients received a dose of TC-2696 or ibuprofen or a placebo after molar extraction surgery.

“TC-2696 did not meet the primary endpoints,” Targacept said in a statement, noting that it did not provide “superior pain relief.”

“These results suggest that TC-2696 is not a viable therapeutic candidate for acute post-operative pain,” targacept said.

The news sent Targacept shares plunging from $8.92 at the open to as low as $6.80. The stock did rally to $7.68 by noon and closed at $8.01.

Targacept will “continue to analyze the data” along with GSK before deciding next steps.

In the deal with Targacept, GSK said it would pay $35 million in up front fees for the rights to Targacept’s two lead drugs. The payment includes the purchase of $15 million of Targacept stock by GSK.

GSK secured rights to Targacept’s TC-2696 and TC-6499, a preclinical compound. TC-2696 targets acute post-operative pain. TC-6499 is a possible treatment for neuropathic pain.

At the core of Targacept’s technology is a proprietary platform called Pentab. The company focuses on so-called neuronal nicotinic receptors (NNRs) that are part of the central nervous system.

GSK wants access to Targacept’s NNR technology. The companies will work on research and discovery targeting pain, smoking cessation, obesity, addiction and Parkinson’s disease.

AstraZeneca is partnered with Targacept to develop an Alzheimer’s drug.