Targacept Reports First Quarter 2012 Financial Results

Targacept, Inc. (NASDAQ: TRGT), a clinical-stage biopharmaceutical company developing novel NNR Therapeutics™, today reported its financial results for the first quarter ended March 31, 2012.

Targacept reported net income of $2.3 million for the first quarter of 2012, compared to $12.6 million for the corresponding 2011 period. As of March 31, 2012, cash and investments in marketable securities totaled $223.7 million.

“We have recently implemented a reduction in force in order to align our resources more closely with nearer-term value creation opportunities,” said J. Donald deBethizy, Ph.D., Targacept’s President and Chief Executive Officer. “We will continue to pursue opportunities to collaborate while at the same time executing our strategy of advancing our innovative pipeline of clinical-stage compounds. We are particularly enthusiastic about the wholly owned, alpha7 NNR-targeted TC-5619, which is in ongoing clinical studies as a treatment for negative symptoms and cognitive dysfunction in schizophrenia and for inattentive-predominant ADHD. Our ADHD study is recruiting well, and we are on track to announce top-line results in the second half of this year.”

Targacept is currently conducting a Phase 2b study of TC-5619 as a treatment for negative symptoms and cognitive dysfunction in schizophrenia, a Phase 2 study of TC-5619 in adults with inattentive-predominant attention deficit/hyperactivity disorder and a Phase 2b study of AZD3480 as a treatment for mild to moderate Alzheimer’s disease, as well as evaluating potential additional development of TC-6987 as a treatment for asthma. In addition, AstraZeneca has informed Targacept that it plans to progress the development of AZD1446 as a treatment for mild to moderate Alzheimer’s disease. Targacept is also evaluating a late preclinical product candidate as a treatment for Parkinson's disease and related disorders supported by grant funding from The Michael J. Fox Foundation for Parkinson’s Research.

Financial Results

Targacept reported net income of $2.3 million for the first quarter of 2012, compared to net income of $12.6 million for the first quarter of 2011. The lower net income for the 2012 period was primarily due to an overall decrease of $16.3 million in deferred revenue recognition, partially offset by a decrease in research and development expenses. Non-cash, stock-based compensation charges of $1.9 million and $2.2 million were recorded for the first quarter of 2012 and 2011, respectively.

Net operating revenues totaled $22.9 million for the first quarter of 2012, compared to $39.0 million for the first quarter of 2011. The lower net operating revenues for the 2012 period were primarily attributable to decreases of $18.4 million in recognition of deferred revenues associated with a now concluded alliance with GlaxoSmithKline and $2.4 million in recognition of deferred revenues from payments previously received from AstraZeneca related to the development of Targacept’s product candidate TC-5619. These decreases were partially offset by an increase of $3.9 million in recognition of the $200.0 million payment previously received from AstraZeneca as a result of a change in the estimated period of Targacept’s performance obligations related to its product candidate TC-5214.

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