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Targacept Reports Fourth Quarter and 2012 Financial Results



  Targacept Reports Fourth Quarter and 2012 Financial Results

Business Wire

WINSTON-SALEM, N.C. -- February 13, 2013

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

Targacept reported a net loss of $15.9 million for the fourth quarter of 2012,
compared to a net loss of $9.8 million for the fourth quarter of 2011. For the
year ended December 31, 2012, Targacept reported a net loss of $7.0 million,
compared to a net loss of $8.5 million for 2011. As of December 31, 2012, cash
and investments in marketable securities totaled $184.9 million.

“I’m excited to be part of Targacept and appreciate the opportunity to lead a
company built on impressive science, with an exceptional and resilient team
committed to developing innovative therapies that have the potential to make a
real difference for patients,” said Dr. Stephen A. Hill, Targacept’s President
and Chief Executive Officer. “We have a strong pipeline of Phase 2b programs
representing three distinct nicotinic receptor mechanisms targeting areas
where the unmet need is great and current therapies, where they exist at all,
are limited. We are fortunate to have a capital base that will support our
business needs through and beyond important clinical outcomes, any one of
which could be transformative.”

Targacept is currently conducting two Phase 2b clinical trials. Enrollment
remains ongoing for studies of TC-5619 as a treatment for negative symptoms
and cognitive dysfunction in schizophrenia and AZD3480 as a treatment for mild
to moderate Alzheimer’s disease. In addition, Targacept plans to initiate a
Phase 2b study of TC-5214 as a treatment for overactive bladder in the first
half of 2013.

Financial Results

Targacept reported a net loss of $15.9 million for the fourth quarter of 2012,
compared to a net loss of $9.8 million for the fourth quarter of 2011. The
higher net loss for the 2012 period was primarily due to a decrease of $18.4
million in deferred revenue recognition and $1.4 million in charges related to
a workforce reduction completed during the fourth quarter of 2012, partially
offset by a decrease of $13.7 million in research and development expenses.
For the year ended December 31, 2012, Targacept reported a net loss of $7.0
million, compared to a net loss of $8.5 million for 2011. The lower net loss
for 2012 was primarily due to a decrease in research and development expenses
of $46.1 million, partially offset by a decrease of $39.8 million in deferred
revenue recognition and $3.7 million in charges related to two workforce
reductions completed during 2012. Non-cash, stock-based compensation charges
of $1.4 million and $2.0 million were recorded for the fourth quarter of 2012
and 2011, respectively, and non-cash, stock-based compensation charges of $7.8
million and $8.5 million were recorded for the year ended December 31, 2012
and 2011, respectively.

Net Operating Revenues

Net operating revenues totaled $590,000 for the fourth quarter of 2012,
compared to $18.9 million for the fourth quarter of 2011. The decrease was due
primarily to deferred revenue recognized during the fourth quarter of 2011
associated with Targacept’s now concluded collaboration with AstraZeneca in
major depressive disorder (MDD) that did not recur during the fourth quarter
of 2012. For the year ended December 31, 2012, net operating revenues totaled
$57.9 million, compared to $97.6 million for 2011. The decrease was
principally attributable to decreased recognition during the 2012 period of
revenue associated with Targacept’s collaboration with AstraZeneca in MDD,
which concluded in 2012, and recognition during 2011 of deferred revenue
associated with Targacept’s alliance with GlaxoSmithKline, which concluded in
2011.

Research and Development Expenses

Research and development expenses totaled $12.3 million for the fourth quarter
of 2012, compared to $26.1 million for the fourth quarter of 2011, and $49.1
million for the year ended December 31, 2012, compared to $95.2 million for
2011. 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 a Phase 3 development program for TC-5214 in MDD and to the first
quarter 2012 completion of two exploratory 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 two
2012 workforce reductions.

General and Administrative Expenses

General and administrative expenses totaled $3.1 million for the fourth
quarter of 2012, compared to $3.0 million for the fourth quarter of 2011, and
$13.2 million for the year ended December 31, 2012, compared to $12.2 million
for 2011. The increase for the full year 2012 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 two 2012 workforce reductions.

Restructuring Charges

Restructuring charges for the fourth quarter and year ended December 31, 2012
were $1.4 million and $3.7 million, respectively, and reflected severance and
other charges related to the workforce reductions completed in the second and
fourth quarters of 2012.

Financial Guidance

Based on current operating plans, Targacept expects its operating revenues for
the year ending December 31, 2013 to be approximately $2.4 million, its
operating expenses for the year ending December 31, 2013 to be in the range of
$48 million to $54 million and its cash, cash equivalents and investments
balance at December 31, 2013 to be at least $135 million. In addition,
Targacept continues to expect that its current cash resources will be
sufficient to meet its operating requirements at least through the end of
2015. This financial guidance includes both cash and non-cash revenue and
expense items.

Conference Call

As previously announced, Targacept will be hosting a conference call and
webcast today, February 13, 2013, at 5:00 p.m. Eastern Time. The conference
call may be accessed by dialing 800.322.2803 for domestic participants and
617.614.4925 for international callers (reference passcode 41520275). A replay
of the conference call may be accessed from approximately 8:00 p.m. Eastern
Time on February 13, 2013 through February 27, 2013 by dialing 888.286.8010
for domestic callers and 617.801.6888 for international callers (reference
passcode 46454957).

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 initiation of
Targacept’s planned Phase 2b clinical trial of TC-5214; 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; whether positive findings from Targacept’s completed clinical trial
of TC-5619 in patients with schizophrenia will be replicated in Targacept’s
ongoing clinical trial of TC-5619 or potential future clinical trials; whether
the executive turnover and two workforce reductions experienced by Targacept
in 2012 will have an adverse impact on the development of any Targacept
product candidate or Targacept’s business generally; 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                Year Ended
                       December 31,                      December 31,
                       2012             2011             2012             2011
                                                                           
Net operating          $ 590            $ 18,945         $ 57,860         $ 97,637
revenues
                                                                           
Operating
expenses:
Research and             12,340           26,069           49,087           95,215
development
General and              3,104            3,021            13,193           12,167
administrative
Restructuring            1,406            -                3,718            -
charges
                                                                           
Total
operating                16,850           29,090           65,998           107,382
expenses
                                                                           
Operating loss           (16,260    )     (10,145    )     (8,138     )     (9,745     )
Other income,            289              340              1,039            1,216
net
                                                                           
Loss before              (15,971    )     (9,805     )     (7,099     )     (8,529     )
income taxes
Income tax               101              -                101              -
benefit
                                                                           
Net loss               $ (15,870    )   $ (9,805     )   $ (6,998     )   $ (8,529     )
                                                                           
Basic and
diluted net            $ (0.47      )   $ (0.29      )   $ (0.21      )   $ (0.27      )
loss per share
                                                                           
Weighted
average common
shares
outstanding -
basic and                33,609,867       33,382,640       33,476,316       31,637,283  
diluted
                                                                                        

TARGACEPT, INC
Unaudited Condensed Balance Sheets
(in thousands)
                                                   December 31,   December 31,
                                                       2012           2011
Cash, cash equivalents and investments             $   184,927    $   249,270
Receivables and other current assets                   2,782          3,213
Property and equipment, net                            1,639          5,035
Other assets, net                                      231            608
Total assets                                       $   189,579    $   258,126
                                                                   
Current portion of deferred revenue                $   2,357      $   57,714
Other current liabilities                              8,992          20,897
Deferred revenue, net of current portion               1,179          3,241
Long-term debt, net of current portion                 1,136          1,986
Total stockholders' equity                             175,915        174,288
Total liabilities and stockholders' equity         $   189,579    $   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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