Stephen Hill – President and CEO Alan Musso – SVP of Finance & Administration, CFO, and Treasurer

Alan Carr – Needham & Company

Good day, ladies and gentlemen, and welcome to the first-quarter 2014 Targacept, Inc. earnings conference call. My name is Erica, and I will be your operator for today. (Operator Instructions). I would now like to turn the call over to Dr. Stephen Hill, President and CEO. Please proceed.

Thank you, Erica, and good morning, everybody, and thank you for joining us. With me this morning is Alan Musso, our Chief Financial Officer. First, let me inform you that comments made today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to plans; expectations; objectives; or future events; financial results or conditions, including for any of our product candidates the design, scope or other details of clinical trials; the timing for initiation or completion of, or for reporting of results from, clinical trials; or for submission or approval of regulatory filings, targeted indications, or commercial opportunities; as well as AstraZeneca's development plans for product candidates licensed from us; our cash runway; revenues or expenses; plans; expectations; or any other matter that is not a historical fact. Actual results may differ materially from those expressed or implied by any forward-looking statement as a result of many factors, including those described under the heading Forward-looking Statements in our press release from earlier today or under the heading Risk Factors in our most recent Form 10-K or in later filings with the SEC. We caution you not to place undue reliance on any forward-looking statement. Also, any forward-looking statement that is made speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statement except as required by applicable law. Today I am pleased to report continued progress towards the completion of our two ongoing Phase 2b clinical trials

TC-5214 for overactive bladder and TC-1734 for Alzheimer's disease, both of which are on track for top-line results around the middle of this year. In addition, we remain well capitalized, having ended the first quarter of 2014 with over $132 million in cash and investments. And we continue to have the benefit of a talented and engaged workforce. Now let me provide you with a brief update on our clinical programs. As previously announced, patient recruitment has been completed in our Phase 2b study of TC-5214 as a treatment for overactive bladder, a chronic disorder that affects approximately 40 million adults in the US alone. As a reminder, this study is a double-blind, placebo-controlled, randomized parallel group study being conducted at over 120 sites in the United States. The study's co-primary endpoints are change in micturition frequency per 24 hours and and change in urinary incontinent for 24 hours – in each case, from baseline to 12 weeks. The study is designed to randomize approximately 750 patients and includes a three- or five-week screening period, followed by a 12-week treatment period during which patients receive either one or three doses of TC-5214 – that is 0.5 milligrams, 1 milligrams, or 2 milligrams – or placebo twice daily with a two-week follow-up period. It is well appreciated that current OAB treatment options have significant shortcomings, including limited efficacy and, for some patients, troubling side effects that results in notoriously poor rates of patient compliance. We believe that our ongoing Phase 2b study is designed to provide a robust data set to assess whether TC-5214 could represent a better therapeutic option for the millions of OAB patients suffering from this debilitating and chronic disorder and thus improve their quality of life. And we, of course, look forward to the upcoming results. Our second ongoing Phase 2b study, which is evaluating TC-1734 as a treatment for mild to moderate Alzheimer's disease, is also on track to deliver top-line results in mid-2014. In this study approximately 300 patients at sites in Eastern Europe and the United States are receiving either TC-1734, which is our wholly-owned alpha4 beta2 modulator; or the market leader, donepezil, as a monotherapy in a head-to-head comparison over a 12-month treatment period. Finally, preparations continued for the start of an exploratory trial of TC-6499 for the indication of diabetic gastroparesis, which remains on track for a mid-2014 initiation. This planned crossover trial is designed to evaluate three doses of TC-6499 and placebo in approximately 20 subjects at several US sites and is utilizing a sophisticated carbon breath test as a surrogate measure of gastric motility. This study design should allow us to quickly and cost-effectively assess proof-of-concept for TC-6499 as a potential treatment option for patients suffering from this chronic disorder. And with that, I would like to turn the call over to Alan for our financial update, and then we will take your questions. Alan?

Thanks, Steve. Let me now briefly highlight our financial results for the first quarter of 2014 which we released earlier today. For the first quarter of 2014 we had a pretax loss of $11.6 million compared to a net pretax loss of $8.1 million for the first quarter of 2013. The increased pretax net loss for the 2014 period was due principally to a decrease of $3.5 million and the recognition of deferred revenue associated with our collaboration agreements. As of March 31, 2014, cash and investments and marketable securities totaled $132.1 million. We continue to expect that we will end 2014 with at least $100 million in cash and investments. And with that, we will open up the call for your questions.

(Operator Instructions) And your first question comes from the line of Alan Carr with Needham. Please proceed.

Alan Carr – Needham & Company: Hi. Good morning. Thanks for taking the questions. Wondered if you could give us an update on – with the latest here in terms of if you have a positive outcome with the 5214 trial, what the next steps there are from a regulatory perspective, and then also the cost for a second Phase 2 trial? Thanks.

Yes, let me take the first part of the question. So we are planning so that we have the minimum amount of time gap between the completion of our Phase 2 and the initiation of a pivotal Phase 3 study. That, obviously, would require an interaction with the Agency to confirm that our Phase 3 pivotal plans are adequate. We don't anticipate anything unusual out of that. The design of the Phase 2 study is very robust in terms the patient numbers and statistical analysis. And routinely in this patient population, Phase 2 results tend to result in being predictive of Phase 3 outcomes. So we would anticipate for the US market a Phase 3 study design very much along the lines of the current Phase 2, maybe with fewer doses, but similar patients on those may be. And a consequence of that, putting actual numbers on it, the cost of running a Phase 3 study would probably be similar to the cost of running the current Phase 2 study. For Europe we would anticipate using an active comparator design. So that is a little bit different, but we would run those in parallel. So if that answers your question, hopefully – if not, happy to explore a bit further.

Alan Carr – Needham & Company: No, that is helpful. Thanks very much.

Thank you.

(Operator Instructions). And we have no further questions at this time. I will turn the call back over to Dr. Stephen Hill for any closing remarks.

Okay, thank you. Appreciate your listening to us this morning. And once again, I'd like to thank all of our employees and those we work with to get these studies done on time and on budget. And we look forward to the outcome later in the year. Thank you, and enjoy the rest of the day.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect and have a great day.