Targacept (NASDAQ:TRGT) has halted work on a drug candidate expected to have applications in schizophrenia and Alzheimer’s disease after clinical studies of the compound failed to meet study targets.

The failure of TC-5619 in the phase IIb clinical trial as an additional therapy for patients with schizophrenia marks the second major failure in two years for the Winston-Salem drug developer. In early 2012, the company’s depression drug candidate failed in phase III clinical trials.

In a statement, Targacept President and CEO Dr. Stephen Hill called the results “disappointing.” Based on the data from the schizophrenia study, Hill said Targacept decided it would also stop further development of TC-5619 for applications in Alzheimer’s disease.

TC-5619 is the same compound that Targacept had initially developed under a drug partnership with pharmaceutical giant AstraZeneca (NYSE:AZN). In 2011, Targacept reported positive results studying the compound as a treatment for cognitive dysfunction in patients with schizophrenia. But the compound had failed in a separate phase II study for attention deficit hyperactivity disorder. AstraZeneca declined its option to license the compound and Targacept said it would continue to pursue studies of TC-5619 in schizophrenia on its own.

That double blind, placebo controlled phase IIb clinical trial was conducted at 64 sites across Eastern Europe and the United States studying 477 patients with schizophrenia. The goal of the study was to show change from the baseline on the Scale for Assessment of Negative Symptoms, after 24 weeks, compared to a placebo. The compound failed to meet that target, nor did it meet the secondary target of showing improvement in cognitive function.

Targacept is now focusing on the three remaining mid-stage compounds in its drug pipeline, including another Alzheimer’s disease compound. TC-1734 is in phase IIb trials for Alzheimer’s; TC-5214 for overactive bladder and TC-6499 for diabetic gastroparesis are also in phase II b trials. Targacept has funds to pay for those trials. As of the end of the third quarter, Targacept reported $61.7 million in cash and cash equivalents on its balance sheet.

Targacept shares closed at $3.91 cents Tuesday, down 34 percent from Monday’s close.