Good day, ladies and gentlemen, and welcome to the third quarter 2008 Targacept earnings conference call. My name is Emmanuel and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. Any statements made, or responses given during this conference call that are not purely historical in nature on secured forward-looking statements, made under the provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements regarding the progress or scope of the research and development of our product candidates, such as the number of subjects to be enrolled in, or the timing for initiation or completion of any of our clinical trials; the indication for which any of our product candidates may be developed, or their timing for reporting of results from AstraZeneca’s HALO trial, or for a decision of AstraZeneca whether to conduct additional clinical development of AZD3480; the possible therapeutic benefits of our product candidates; any future payments that AstraZeneca or GlaxoSmithKline may make to us; or our plans, expectations for future operations, financial position, costs, or expenses. Actual results may differ materially from those expressed or implied by forward-looking statements as a result of various important factors, including, without limitation, those described under the heading Forward-looking Statements in the press release that we issued earlier today, or under the heading Risk Factors in our most recent Annual Report on Form 10-K and other filings that we make with the Securities and Exchange Commission. Such forward-looking statements speak only as of today, and should not be relied upon as representing our views as of any date after today. We disclaim any obligation to update any forward-looking statements, except as required by applicable law. I would now like to turn the call over to your host for today, Dr. DeBethizy, President and CEO of Targacet. Please proceed, sir.

Thank you, Emmanuel. Good afternoon ladies and gentlemen and welcome to Targacept’s third quarter 2008 conference call. I am Don DeBethizy, President and Chief Executive Officer; and with me on this call is Alan Musso, Targacept’s Chief Financial Officer. During this call, I will provide an update on Targacept’s product development programs and business activities, and then Alan will review of financial results for the third quarter ended September 30, 2008, which we have just released. In the third quarter, we continued to execute on our programs and build upon our leadership position in the NNR field. We are fortunate to have a broad pipeline of NNR Therapeutics and development for several major indications, as well as deals with two off the world’s leading pharmaceutical companies that support our research and development efforts and provide opportunities to capitalize on our proven ability to design highly targeted compounds with diverse pharmacologies and grow our portfolio. Now let me review with you our programs. I will begin with AZD3480, which has been known historically as TC-1734, and is being evaluated as a treatment for three different cognitive disorders. On September 15, we announced that the results from the Phase IIb clinical trial in mild to moderate Alzheimer's disease, conducted by AstraZeneca, known as the Sirocco trial, were inconclusive. Neither AZD3480 nor the active comparator donepezil met the trial’s criteria for statistical significance on the primary outcome measure, ADAS-Cog; with both results being impacted by improvement in the receiver group. In our announcement, we reported encouraging findings on secondary outcome measures in the trial, the Alzheimer's Disease Co-operative Study – Clinical Global Impression of Change, which has set this domain to cognition, behavior, and social and daily functioning, and the mini-mental state examination, known as the MMSC, which measures cognitive impairment. Since September…

Thank you, Don. Let me now to be with you our financial results for the third quarter 2008. We ended the third quarter of 2008 in a strong cash position, with approximately $94 million in cash, cash equivalents and short-term investments. We project that our current cash will fund our operating requirements at least through the end of the third quarter of 2010. Between now and then, we are eligible to receive several milestone payments contingent on the achievement of clinical development related events under our agreements with AstraZeneca and GlaxoSmithKline that are not captured in our baseline forecast, which if we're successful, could further extend our cash run rate. We continue to focus on the efficient use of capital and controlling our expenses as we execute our business plan in these challenging economic times. Turning to our operating results, for the third quarter of 2008, we had a net loss of $7.6 million, compared to a net loss of $7.4 million for the third quarter of 2007. In the third quarter of 2008, our net operating revenues were $4.1 million, compared to $3.1 million for the third quarter of 2007. The increase was principally due to an additional $586,000 of milestones and license fees, which reflect an increase in deferred license fee revenue from payments that we received from GlaxoSmithKline in July 2007 and from GlaxoSmithKline and AstraZeneca in the fourth quarter of 2007. The higher net operating revenues were also attributable to an increase of $361,000 in collaboration research and development revenue, resulting from additional work performed in preclinical research collaboration with AstraZeneca. Our research and development expenses totaled $10.7 million for the third quarter of 2008 compared to $9.4 million for the third quarter of 2007. The higher research and development expenses were principally due to an…

Thank you, Alan, and thanks to everyone again for joining us on todays call. We would be happy to take any questions you may have.

(Operator instructions) And our first question will come from the line of Terence Flynn of Lazard Capital Markets. Please proceed. Terence Flynn – Lazard Capital Markets: Hi, good afternoon. Just a couple of questions. I was just wondering if you could share with us – sorry I apologize, I know you went through this in the opening remarks – but just maybe you could give us some additional feedback on the – you guys received from the thought leaders with respect to the Sirocco trial and maybe some of their current thoughts about the secondary endpoint data, but also the duration of the study and if you could help us out there, that would be great.

First of all, I just want to remind everyone that in our disclosure in September, we reported that there was a – the numerical improvements on the mini mental state exam as well as on CTIC, and what we just reported on the call is the fact that the four experts also came to the same conclusion that those numerical changes were encouraging. So, it was consistent, we were pleased to see that and we are that supportive of the valuation that has been going on now and whether AstraZeneca moves the compound forward or not. And the second part of your question, Terence? Terence Flynn – Lazard Capital Markets: Just the duration of the study, I know that was one thing that you guys had probably raised, maybe the duration of the study was too short at 12 weeks, to see a kind of decline in the placebo group. Did they give you any feedback on their thoughts or perspective of that, possibly the duration of the next study?

Well, as you know; when we designed the Sirocco trial two or three years ago, we were relying on quite a bit of data out of the 90s, which indicated that you could separate from placebo and you would get placebo decline within 12 weeks. I think people looking now at Alzheimer's trials are recommending trial being longer in order to ensure that placebo declined. So if AstraZeneca decides to move forward, that would be a consideration for the length of the trial. Terence Flynn – Lazard Capital Markets: Okay, great. And, just wondering if you guys are taking any steps with respect to expenses to kind of – given the current situation in the capital markets to try to conserve – make your cash run rate last a little longer, I know your guidance has always been second half of 2010, but just wondering if you are thinking about that or if it is still too early, maybe?

No, I think that I am going to have Alan comment on it, but it was inherent in the numbers that he was presenting and I would like him to give you a little more color on that.

Yes, today we were able to sort of update our guidance and increase our expected cash balance from what was a guidance of $75 million to being at least $82 million, and we are actively managing our business, keeping a careful eye on our expenses, being careful to let into our headcount, and then, when we are doing outsourced work, we are very aggressive in terms of assuring that we get a good turn for that work, get good value, and work through poor performance where we can to assure that our vendors deliver to us, as well as we look carefully at our portfolio and have to make choices in terms of what we fund and the timing of those. So we are making sure that we do preserve our cash, use our cash wisely and we have been able to reflect that in the updated guidance. Terence Flynn – Lazard Capital Markets: Great. Thanks a lot guys.

Thank you.

And our next question will come from the line of Bret Holley with Oppenheimer. Please proceed. Bret Holley – Oppenheimer: Hey, guys. Thanks for taking the question. I had a question about clinical proof of concept, as it is defined under the Glaxo agreement; is that clearly delineated, and how fast might you get to POC in the 6499 program?

Well there is the first part of that is – the interesting part of the GSK deal with the SEED is that these are – we are in control of development of these programs. So, we make decisions about whether compounds move forward, but we get the benefit of their experience, they have brought experience in the therapeutic areas that we're working in, and we work with them and the team, the alliance team that we have in place. So, we want to make sure that the POC design is set up such that it can compete well with NGSK for selection to move forward and for them to exercise their options. And it is really defined on a case-by-case basis, and then it is subject to the limits of some predefined elements of the agreement. Bret Holley – Oppenheimer: Okay, so are these aspects that are in writing that they can’t essentially waffle, at some length and say, we are not sure if this constitutes (inaudible)?

That is correct. We will have a clear idea of what proof of concept looks like as we move forward, and it is in both of our best interest. Remember the SEED is operating within GSK as a way to expand their possibilities for pipeline development, and utilizing companies that have demonstrated the ability to discover and rapidly translate preclinical compounds into the clinic and to proof of concept. So it is really focused on – which has been the subject of previous calls, on identifying companies that are strong in doing that. We are a company that is capable of doing that very well. And then, they want to be successful. So, they want to work closely with us to make sure that we have the best shot at competing within GSK for selection and the exercising of their option to move forward and agreement on proof of concept. Bret Holley – Oppenheimer: And then to my original question, which is how fast might we get to proof of concept on 6499?

Well, we have indicated before that it would be in the middle of 2010 before we reach proof of concept on 6499. We are in the middle of – we are moving forward in Phase I on schedule, and we are now in the multiple rising dose trial with 6499. Bret Holley – Oppenheimer: So I presume that you start some kind of fairly meaningful Phase II program relatively early on in 2009 to meet the goal of mid 2010, correct?

We haven't disclosed exactly when we are starting that trial. But we will have to start a trial in 2009 to meet that kind of a timetable. Bret Holley – Oppenheimer: Okay, thanks a lot, Don.

You bet, Bret.

And our next question will come from the line of Bill Tanner with Leerink Swann. Please proceed, sir. Bill Tanner – Leerink Swann: Yes, thanks. Don, just a question on 3480, just on the data review, I don't know if you can comment as to the extensiveness that – understanding that you have got four experts extensiveness of the data it has gone through, and just sort of the process of – I’m guessing, involving both Targacept as well as Astra and then any contemplation of patients with different levels of dementia, in addition to or above the original treatment?

Yes, Bill, we are very pleased with the relationship we have with AstraZeneca. It has been cooperative from the get-go, we did a lot of teambuilding early on and it is really paying off now. They have actively involved our people. In fact, Geoffrey Dunbar was involved in the original statistical analysis, we have had ongoing dialogue with them, interaction around the subsequent analysis, and I have to say that the initial top line results were pretty comprehensive. We had a good data set to draw our original conclusions around the secondary endpoints. And then, the subsequent analysis – there is nothing that has come out from the subsequent analysis that would lead us to doubt the original conclusions that we drew around the numerical values and the significance of those numerical values that we reported in the call in September. So we have been pleased with the analysis, there has been nothing that has come out so far that would say that we would change the original disclosure. So, that is encouraging, that means the top line results were pretty comprehensive, and indicator of where the activity was. I think the key now and the other point that we made during this call is the fact that the four medical Alzheimer's experts confirmed that the secondary endpoints were encouraging, that was good to get that feedback. And now, AstraZeneca is in the process of working through that and determining what the next steps would be, and as they have always said from the very beginning, they wanted to have the schizophrenia results in hand for they made those decisions about how – if and how they would move 3480 forward. Bill Tanner – Leerink Swann: (inaudible) question, so the HALO trial would not necessarily be make or break, the HALO trial might not work and they could still decide to take 3480 ahead in AD?

Yes, that is correct. Bill Tanner – Leerink Swann: And then, can you remind me of just of the timeline after the HALO data become available, you may have said it earlier, I apologize if you did – the timeline in which they would have to actually decide?

They have been consistent on the timeline of year end 2008. Bill Tanner – Leerink Swann: Okay. So you will have the data and you will have a decision as to whether they will move forward?

Correct. Bill Tanner – Leerink Swann: Okay, thanks very much.

All right, Bill. Thank you.

(Operator instructions) And our next question will come from the line of Kim Lee with Pacific Group Equities. Please proceed. Kim Lee – Pacific Group Equities: Good afternoon.

Hi, Kim. Kim Lee – Pacific Group Equities: A couple of finance questions here. Can you actually break down the revenues – I apologize if I missed it earlier, what exactly were invested in sales versus (inaudible) research grants and milestones and license fees?

Alan?

Sure, yes. I could do that for you. The collaboration research and development in the third quarter was about $2.4 million; the milestones and licensees were about $1.6 million; and then our sales were about $164,000. Kim Lee – Pacific Group Equities: Okay, great. Thanks. And I apologize if I missed it earlier, can you repeat what you said about where you are at with the TC-6499?

We are in the multiple rising dose Phase I trial currently. And we're working through that right now. So we are on track and we have also continued to disclose that we are on track to complete the POC trial by mid 2010. Kim Lee – Pacific Group Equities: Thanks a lot.

Thank you.

And at this time, I show no more questions. I would like to turn the call back over to Dr. DeBethizy for closing remarks.

Thank you very much. I want to thank everybody for joining us on this third-quarter call and look forward to the fourth quarter and our results on 3480 and continued progress on the rest of the programs. So, thank you very much.