Targacept Reports Third Quarter 2012 Financial Results

  Targacept Reports Third Quarter 2012 Financial Results

Business Wire

WINSTON-SALEM, N.C. -- November 06, 2012

Targacept, Inc. (NASDAQ: TRGT), a clinical-stage biopharmaceutical company
developing novel NNR Therapeutics™, today reported its financial results for
the third quarter and nine months ended September 30, 2012.

Targacept reported a net loss of $7.9 million for the third quarter of 2012,
compared to a net loss of $9.1 million for the third quarter of 2011. For the
nine months ended September 30, 2012, Targacept reported net income of $8.9
million, compared to net income of $1.3 million for the corresponding period
of 2011. As of September 30, 2012, cash and investments in marketable
securities totaled $195.6 million.

“In the third quarter, we continued to focus on execution of our clinical
programs for three pharmacologically distinct NNR Therapeutics, while
maintaining an emphasis on capital efficiency,” said Mark Skaletsky, Chairman
of Targacept’s Board of Directors. “Each of these programs is directed to a
disease or disorder where the medical need is substantial and current
therapies are inadequate. While innovation-based drug development is
inherently high risk, we believe our programs carry potential for significant
value with successful clinical trial outcomes. Targacept remains well
capitalized and fortunate to have a capable and talented team dedicated to the
goal of building health and restoring independence for patients.”

Targacept is currently conducting two Phase 2b clinical trials. Enrollment for
a study of TC-5619 as a treatment for negative symptoms and cognitive
dysfunction in schizophrenia remains ongoing, with top-line results now
expected in the fourth quarter of 2013. Enrollment is also continuing for a
study of AZD3480 as a treatment for mild to moderate Alzheimer’s disease, with
top-line results now expected in the middle of 2014. In addition, Targacept is
conducting preparatory activities for a planned Phase 2b study of TC-5214 as a
treatment for overactive bladder that it expects to initiate in the first half
of 2013.

Financial Results

Targacept reported a net loss of $7.9 million for the third quarter of 2012,
compared to a net loss of $9.1 million for the third quarter of 2011. The
lower net loss for the 2012 period was primarily due to a decrease of $19.0
million in research and development expenses, partially offset by a decrease
of $17.8 million in deferred revenue recognition. For the nine months ended
September 30, 2012, Targacept reported net income of $8.9 million, compared to
net income of $1.3 million for the corresponding period of 2011. The higher
net income for the 2012 period was primarily due to a decrease in research and
development expenses of $32.4 million, partially offset by a decrease of $21.3
million in deferred revenue recognition and $2.3 million in charges related to
a reduction in force completed in the second quarter of 2012. Non-cash,
stock-based compensation charges of $1.4 million and $2.1 million were
recorded for the third quarter of 2012 and 2011, respectively, and non-cash,
stock-based compensation charges of $6.5 million were recorded for each of the
nine-month periods ended September 30, 2012 and 2011.

Net Operating Revenues

Net operating revenues totaled $768,000 for the third quarter of 2012,
compared to $19.0 million for the third quarter of 2011. The decrease was due
primarily to deferred revenue recognized during the third quarter of 2011
associated with Targacept’s now concluded collaboration with AstraZeneca for
TC-5214 that did not recur during the third quarter of 2012. For the nine
months ended September 30, 2012, net operating revenues totaled $57.3 million,
compared to $78.7 million for the corresponding 2011 period. The decrease was
principally attributable to recognition during the 2011 period of deferred
revenue associated with a now concluded alliance with GlaxoSmithKline.

Research and Development Expenses

Research and development expenses totaled $6.4 million for the third quarter
of 2012, compared to $25.4 million for the third quarter of 2011, and $36.7
million for the nine months ended September 30, 2012, compared to $69.1
million for the corresponding 2011 period. The decrease for both 2012 periods
was principally attributable to lower costs incurred for third-party research
and development services in connection with clinical-stage product candidates
and preclinical programs and lower research and development-related operating
costs. For both 2012 periods: the lower costs for clinical-stage product
candidates were principally due to the end of the Phase 3 development program
for TC-5214 in major depressive disorder and to the first quarter 2012
completion of two clinical trials of TC-6987; the lower costs for preclinical
product candidates were primarily due to a strategic decision to focus
resources on clinical programs; and the lower research and development-related
operating costs were primarily due to the second quarter 2012 reduction in
workforce.

General and Administrative Expenses

General and administrative expenses totaled $2.4 million for the third quarter
of 2012, compared to $2.8 million for the third quarter of 2011, and $10.1
million for the nine months ended September 30, 2012, compared to $9.1 million
for the corresponding 2011 period. The decrease for the third quarter of 2012
was primarily attributable to the second quarter 2012 reduction in workforce.
The increase for the 2012 year-to-date period was primarily attributable to
severance and stock-based compensation charges recorded in connection with the
departure of Targacept’s former chief executive officer and two other
executive officers during the first half of 2012, partially offset by
decreased expenses as a result of the second quarter 2012 reduction in
workforce.

Restructuring Charges

Restructuring charges for the nine months ended September 30, 2012 totaled
$2.3 million and reflected severance and other charges related to the second
quarter 2012 reduction in force.

Updated Financial Guidance

Targacept is updating its financial guidance for 2012 to reflect current
operating and program spending expectations. Targacept now expects its
operating revenues for the year ending December 31, 2012 to be approximately
$58 million, its operating expenses for the year ending December 31, 2012 to
be in the range of $58 million to $62 million and its cash, cash equivalents
and investments balance to be at least $180 million at December 31, 2012. This
financial guidance includes both cash and non-cash revenue and expense items.

In addition, following the implementation of the restructuring plans
previously announced, Targacept expects to realize annual savings of
approximately $22.5 million beginning in 2013, with 2013 cash requirements
expected to be in the range of $16 million to $18 million for internal
operations and $25 million to $30 million for external costs associated with
pipeline programs.

Conference Call

As previously announced, Targacept will be hosting a conference call and
webcast today, November 6, 2012, at 5:00 p.m. Eastern Time. The conference
call may be accessed by dialing 800.706.7741 for domestic participants and
617.614.3471 for international callers (reference passcode 78046906). A replay
of the conference call may be accessed from approximately 8:00 p.m. Eastern
Time on November 6, 2012 through November 20, 2012 by dialing 888.286.8010 for
domestic callers and 617.801.6888 for international callers (reference
passcode 85901627).

A live audio webcast of the conference call will be accessible from the
Investor Relations page of Targacept’s website, www.targacept.com. To ensure a
timely connection to the webcast, it is recommended that users register at
least 15 minutes prior to the scheduled start time. An archived version of the
webcast will also be available on the Investor Calendar section of the
Investor Relations page of Targacept's website for at least two weeks
following the call.

About Targacept

Targacept is developing a diverse pipeline of innovative NNR Therapeutics™ for
difficult-to-treat diseases and disorders of the nervous system. NNR
Therapeutics selectively modulate the activity of specific neuronal nicotinic
receptors, unique proteins that regulate vital biological functions that are
impaired in various disease states. Targacept’s clinical pipeline includes
multiple Phase 2 product candidates, all representing first-in-class
opportunities. Targacept leverages its scientific leadership and diverse
pipeline to attract significant collaborations with global pharmaceutical
companies. For more information, please visit www.targacept.com.

TARGACEPT

Building Health, Restoring Independence®

Forward-Looking Statements

This press release includes "forward-looking statements" made under the
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements, other than statements of
historical fact, regarding without limitation: the timing for results from
Targacept’s ongoing Phase 2b clinical trials of TC-5619 and AZD3480 or for
initiation of the planned Phase 2b clinical trial of TC-5214; the annual
savings to be realized from the two reductions in Targacept’s workforce and
other operational changes implemented in 2012; or Targacept's plans,
expectations or future operations, financial position, revenues, costs or
expenses. Actual results, performance or experience may differ materially from
those expressed or implied by any forward-looking statement as a result of
various important factors, including without limitation Targacept's critical
accounting policies and risks and uncertainties relating to: the conduct and
results of clinical trials and non-clinical studies and assessments of
TC-5619, TC-5214, AZD3480 and any other Targacept product candidate, including
the performance of third parties engaged to execute such trials, studies and
assessments, delays resulting from any changes to the applicable protocols and
difficulties or delays in the completion of subject enrollment or data
analysis; Targacept’s ability to manage its cash operating expenses and
achieve the estimated savings; whether the two workforce reductions
implemented in 2012 will have an adverse impact on the development of any
Targacept product candidate or Targacept’s business generally; whether
positive findings from Targacept’s completed clinical trial of TC-5619 in
patients with schizophrenia will be replicated in ongoing or potential future
clinical trials of TC-5619; the impact of AstraZeneca's restructuring
initiatives in neuroscience research and development announced in February
2012; the control or significant influence that AstraZeneca has over the
development of AZD3480 and AZD1446, including as to the timing, scope and
design of any future clinical trials and as to the conduct at all of further
development of AZD1446 or of AZD3480 beyond the ongoing trial in mild to
moderate Alzheimer's disease; Targacept’s ability to establish additional
strategic alliances, collaborations or licensing or other comparable
arrangements on favorable terms; Targacept's ability to protect its
intellectual property; and the timing and success of submission, acceptance
and approval of regulatory filings. Risks and uncertainties that Targacept
faces are described in greater detail under the heading "Risk Factors" in
Targacept's most recent Annual Report on Form 10-K and in other filings that
it makes with the Securities and Exchange Commission. As a result of the risks
and uncertainties, the results or events indicated by the forward-looking
statements may not occur. Targacept cautions you not to place undue reliance
on any forward-looking statement.

In addition, any forward-looking statement in this press release represents
Targacept’s views only as of the date of this press release and should not be
relied upon as representing its views as of any subsequent date. Targacept
disclaims any obligation to update any forward-looking statement, except as
required by applicable law.

NNR Therapeutics™ and Building Health, Restoring Independence® are trademarks
or service marks of Targacept, Inc. Any other service marks, trademarks and
trade names appearing in this press release are the properties of their
respective owners.

TARGACEPT, INC
Unaudited Condensed Statements of Operations
(in thousands, except share and per share amounts)
                   Three Months Ended               Nine Months Ended
                       September 30,                     September 30,
                        2012          2011           2012         2011
                                                                        
Net operating          $ 768            $ 18,955         $ 57,270       $ 78,692
revenues
                                                                        
Operating
expenses:
Research and             6,434            25,444           36,747         69,146
development
General and              2,432            2,842            10,089         9,146
administrative
Restructuring            -                -                2,312          -
charges
                                                                     
Total
operating                8,866            28,286           49,148         78,292
expenses
                                                                     
Operating                (8,098     )     (9,331     )     8,122          400
(loss) income
Interest
income, net of           219              277              750            876
interest
expense
                                                                     
                                                                     
Net (loss)             $ (7,879     )   $ (9,054     )   $ 8,872        $ 1,276
income
                                                                     
Basic net
(loss) income          $ (0.24      )   $ (0.27      )   $ 0.27         $ 0.04
per share
                                                                     
Diluted net
(loss) income          $ (0.24      )   $ (0.27      )   $ 0.26         $ 0.04
per share
                                                                     
Weighted
average common
shares
outstanding -           33,494,106     33,377,874     33,431,474    31,049,104
basic
                                                                        
Weighted
average common
shares
outstanding -           33,494,106     33,377,874     33,692,875    32,361,508
diluted

TARGACEPT, INC
Unaudited Condensed Balance Sheets
(in thousands)
                                                September 30, December 31,
                                                    2012          2011
Cash, cash equivalents and investments              $   195,608   $   249,270
Collaboration receivables and other current             4,397         3,689
assets
Property and equipment, net                             3,375         5,035
Other assets, net                                      119          132
Total assets                                        $   203,499   $   258,126
                                                                  
Current portion of deferred revenue                 $   2,357     $   57,714
Other current liabilities                               7,453         20,897
Deferred revenue, net of current portion                1,768         3,241
Long-term debt, net of current portion                  1,351         1,986
Total stockholders' equity                             190,570      174,288
Total liabilities and stockholders' equity          $   203,499   $   258,126

Contact:

Targacept, Inc.
Alan Musso, 336-480-2186
SVP and CFO
alan.musso@targacept.com
or
Linnden Communications
Michelle Linn, 508-362-3087
linnmich@comcast.net
 
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