TARGACEPT REPORTS 2ND QTR 2007 NET LOSS OF $8.3 MILLION.

Targacept, Inc. (NASDAQ: TRGT), Winston-Salem, N.C., a clinical-stage biopharmaceutical company developing a new class of drugs known as NNR Therapeutics(TM), has reported its financial results for the second quarter ended June 30, 2007.

Targacept reported a net loss of $8.3 million for the second quarter of 2007, compared to a net loss of $4.6 million for the second quarter of 2006. For the six months ended June 30, 2007, Targacept reported a net loss of $13.1 million, compared to a net loss of $9.9 million for the corresponding period in 2006. As of June 30, 2007, cash, cash equivalents and short-term investments totaled $63.0 million. After the end of the quarter, on July 27, 2007, Targacept entered into a strategic alliance with GlaxoSmithKline. In connection with the alliance, GlaxoSmithKline made an initial payment of $35.0 million to Targacept, which includes a non-refundable payment of $20.0 million and the purchase of 1,275,502 shares of Targacept's common stock for an aggregate purchase price of $15.0 million.

"Since the beginning of the year, we have continued to advance our pipeline of NNR Therapeutics, which now includes five clinical-stage and two late preclinical product candidates," said J. Donald deBethizy, Ph.D., Targacept's president and CEO. "We believe that, together with the broad development of our lead product candidate, AZD3480, by our collaborator AstraZeneca, our recently announced alliance with GlaxoSmithKline validates both the importance of NNRs in the potential treatment of CNS diseases and disorders and our leadership position in the NNR space. We look forward to the advancement of our product candidates that are subject to these strategic relationships, as well as to progressing our promising depression and anxiety and alpha7 NNR programs."

Recent Highlights

-- AstraZeneca initiated a Phase IIb clinical trial of AZD3480 (TC-1734) in mild to moderate Alzheimer's disease, with plans to initiate a separate Phase IIb clinical trial of AZD3480 (TC-1734) in cognitive deficits in schizophrenia in August 2007;

-- Formed a strategic alliance with GlaxoSmithKline to discover, develop and market novel therapeutics that selectively target specified NNR subtypes in five therapeutic focus areas: pain, smoking cessation, obesity, addiction and Parkinson's disease;

-- Continued to conduct the ongoing Phase II clinical trial of TC-2696 in third molar extraction patients and remain on track for completion of the trial in the second half of 2007;

-- Presented data from the completed Phase II clinical trial of mecamylamine hydrochloride as an add-on therapy to citalopram hydrobromide, a treatment combination known as TRIDMAC(TM), at the 2007 Summer Meeting of the British Association for Psychopharmacology;

-- Conducted additional preparatory activities for the potential clinical development of TC-5214, an enantiomer of mecamylamine hydrochloride;

-- Continued to conduct the ongoing Phase I clinical trial of TC-2216, a selective inhibitor of the alpha4beta2 NNR in development for depression and anxiety disorders;

-- Initiated a Phase I clinical trial of TC-5619, the most advanced compound in Targacept's chemically diverse alpha7 NNR program;

-- Continued to conduct manufacturing activities necessary to support the planned initiation of clinical development of TC-6499, a preclinical product candidate for neuropathic pain, in the second half of 2007;

-- Added Ralph Snyderman, M.D., an internationally recognized health care expert who combines a distinguished career in medicine with substantial industry experience, to the board of directors; and

-- J. Donald deBethizy, president and CEO, testified before the Senate Committee on Health, Education, Labor and Pensions Subcommittee on Retirement Security and Aging on current and future breakthrough research in Alzheimer's disease.

Financial Results

Targacept reported a net loss of $8.3 million for the second quarter of 2007, compared to a net loss of $4.6 million for the second quarter of 2006. For the six months ended June 30, 2007, Targacept reported a net loss of $13.1 million, compared to a net loss of $9.9 million for the corresponding period in 2006. The higher net loss for each of the 2007 periods was principally attributable to increased research and development expenses and stock-based compensation expense, partially offset by increased revenue.

Revenue totaled $2.8 million for the second quarter of 2007, compared to $589,000 for the corresponding period in 2006. The increase was primarily attributable to an increase of $2.3 million, to $2.6 million, in revenue derived under Targacept's collaboration agreement with AstraZeneca for the 2007 period, compared to $313,000 for the 2006 period. For the six months ended June 30, 2007, Targacept reported revenue of $4.9 million, compared to $1.2 million for the corresponding period in 2006. The increase was primarily attributable to an increase of $3.7 million, to $4.3 million, in revenue derived under the AstraZeneca agreement for the 2007 period, compared to $583,000 for the 2006 period.

Research and development expenses totaled $9.1 million for the second quarter of 2007, compared to $4.6 million for the corresponding period in 2006. For the six months ended June 30, 2007, research and development expenses totaled $15.3 million, compared to $9.4 million for the corresponding period in 2006. The increase in research and development expenses for each of the 2007 periods was principally attributable to increased contracted research and development services and greater occupancy, salary and benefit, recruitment, supply and infrastructure costs incurred in connection with increased activity in Targacept's preclinical research collaboration with AstraZeneca and in the development of Targacept's product pipeline.

General and administrative expenses totaled $2.6 million for the second quarter of 2007, compared to $1.3 million for the corresponding period in 2006. For the six months ended June 30, 2007, general and administrative expenses totaled $4.0 million, compared to $2.5 million for the corresponding period in 2006. The increase in general and administrative expenses for each of the 2007 periods was primarily attributable to additional stock-based compensation expense resulting primarily from option grants to members of Targacept's board of directors. Targacept's board of directors did not receive any equity compensation in 2006.

Interest income, net of interest expense, totaled $808,000 for the second quarter of 2007, compared to $698,000 for the corresponding period in 2006. Interest income, net of interest expense, totaled $1.7 million for the six months ended June 30, 2007, compared to $974,000 for the corresponding period in 2006. The increase was primarily attributable to a higher average cash balance during the 2007 period following the receipt of a $20.0 million milestone payment from AstraZeneca in January 2007.

Financial Guidance

Based on current operating plans and taking into account the $35.0 million in initial proceeds received from GlaxoSmithKline, Targacept expects that its cash, cash equivalents and short-term investments will be at least $75.0 million at December 31, 2007.

About Targacept

Targacept is a clinical-stage biopharmaceutical company that discovers and develops NNR Therapeutics(TM), a new class of drugs for the treatment of central nervous system diseases and disorders. Targacept's product candidates selectively modulate neuronal nicotinic receptors that serve as key regulators of the nervous system to promote therapeutic effects and limit adverse side effects. Targacept has product candidates in development for Alzheimer's disease and cognitive deficits in schizophrenia, pain, and depression and anxiety disorders, as well as multiple preclinical programs. Targacept also has strategic alliances with AstraZeneca and GlaxoSmithKline.

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