TARGACEPT REPORTS NET LOSS OF 5.5 MIL FOR FIRST QTR 2006.

Targacept, Inc. (Nasdaq: TRGT), Winston-Salem, N.C., a clinical-stage biopharmaceutical company focused on a new class of drugs that selectively target neuronal nicotinic receptors, or NNRs, to treat central nervous system diseases and disorders today reported its financial results for the first quarter ended March 31, 2006.

Targacept reported revenue of $606,000 and a net loss of $5.2 million for the first quarter of 2006. As of March 31, 2006, cash and cash equivalents totaled $27.2 million. Following the end of the first quarter of 2006, Targacept raised approximately $40.7 million in net proceeds in its initial public offering completed in April 2006.

"The beginning of 2006 was an important period for Targacept, highlighted by positive clinical trial results from our Phase II clinical trial of TC-1734 (AZD3480) in memory impaired older subjects, the initiation of our collaboration with AstraZeneca and our receipt of the $10 million initial fee, and the completion of our initial public offering," said J. Donald deBethizy, Ph.D., president and CEO. "We are well positioned to advance the development of our pipeline of NNR- selective therapeutics and look forward to a productive collaboration with AstraZeneca."

Recent Highlights:

- Announced positive results from a Phase II clinical trial of TC-1734 (AZD3480) in age associated memory impairment. In the trial, TC-1734 (AZD3480) achieved statistically significant results in the 50mg dose group on all three co-primary endpoints and was generally well tolerated as compared to placebo.

- TC-2696, Targacept's product candidate in development for acute post- operative pain, showed a positive trend in a surrogate measure of pain relief in a Phase I multiple rising dose clinical trial in progress.

- Progressed development of TC-2216, a preclinical product candidate that has shown positive activity in models of depression, anxiety and obesity, toward an IND/CTA filing planned for 2H06.

- Selected TC-5619, a novel alpha 7 NNR compound, as a lead product candidate. Compounds with selective activity at the alpha 7 NNR are believed to have promise as treatments for conditions such as schizophrenia, cognitive impairment and inflammation.

- Received an initial fee of $10.0 million under the collaboration agreement with AstraZeneca and initiated research collaboration.

- Completed an initial public offering of 5.0 million shares of common stock at $9.00 per share in April 2006, resulting in $45.0 million in gross proceeds.

First Quarter 2006 Results

Targacept reported a net loss of $5.2 million for the first quarter of 2006, compared to a net loss of $7.4 million for the comparable period in 2005. Targacept's net loss for the first quarter of both 2006 and 2005 reflected the company's adoption of Statement of Financial Accounting Standard No. 123(R), relating to stock-based compensation expense, effective January 1, 2005. Targacept had non-cash, stock-based compensation expense of $127,000 and $358,000 for the 2006 and 2005 periods, respectively. The net loss for the 2005 period also included a transaction charge of $1.6 million for expenses related to a planned public offering that was not completed.

Revenue totaled $606,000 for the first quarter of 2006, compared to $303,000 for the comparable period in 2005. This increase was principally due to $271,000 in revenue recognized under Targacept's collaboration agreement with AstraZeneca in the 2006 period.

Research and development expense totaled $4.8 million for the first quarter of 2006, compared to $5.1 million for the comparable period in 2005. Non-cash stock-based compensation included in research and development expense was $88,000 and $239,000 for the 2006 period and the 2005 period, respectively. Research and development expense for the 2006 period reflected a decrease of $1.1 million in spending relating to TC-1734 (AZD3480) as a result of the assumption by AstraZeneca of development costs under the collaboration agreement. The reduced TC-1734 (AZD3480) spending was partially offset by increased spending to advance TC-2216 and increased third-party service, supply and infrastructure costs in connection with the initiation of preclinical research under the collaboration agreement with AstraZeneca.

General and administrative expense totaled $1.2 million for both the first quarter of 2006 and the first quarter of 2005. Non-cash stock-based compensation included in general and administrative expense was $39,000 and $119,000 for the 2006 period and the 2005 period, respectively.

2006 Financial Guidance

Based on current operating plans, expected timing and cost of clinical trials and other product development activities, Targacept expects its net cash used in operating activities to be in the range of $18 million to $22 million for the nine months from April through December 2006 and its cash, cash equivalents and marketable securities balance to be in the range of $46 million to $50 million at December 31, 2006.

About Targacept

Targacept is a biopharmaceutical company engaged in the design, discovery and development of a new class of drugs to treat multiple diseases and disorders of the central nervous system by selectively targeting neuronal nicotinic receptors, or NNRs. NNRs are found on nerve cells throughout the nervous system and serve as key regulators of nervous system activity. Targacept's product candidates are designed to selectively target specific NNR subtypes to promote therapeutic effects and limit adverse side effects. Targacept has a marketed product, Inversine(R) (mecamylamine hydrochloride), product candidates in development for Alzheimer's disease and cognitive deficits in schizophrenia, pain and depression, and multiple preclinical programs.

For more information, visit http://www.targacept.com or call 336/480-2186.