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May 15, 2006 (Vol. 26, No. 10)

Targeting a Multibillion-Dollar Market

AtheroGenics May Have Results on its Phase III Plaque-Reducing Drug in Early 2007

  • Even with its lead drug candidate, AGI-1067, designed to reduce plaque in treating atherosclerosis, still in Phase III, AtheroGenics (AGIX; www.atherogenics.com) is already being touted as an attractive investment for the patient investor.

    If successful, asserts Jason Napodano, senior biotech & pharmaceutical analyst at Zacks Investment Research (www.zacks .com), the drug could be a multibillion-dollar blockbuster, considering the lack of immediate competition and the enormous size of the market.

    AtheroGenics concentrates on the discovery, development, and commercialization of drugs for the treatment of chronic inflammatory diseases, including atherosclerosis, rheumatoid arthritis, and asthma. It currently has two compounds in trials, developed using its V-Protectant technology: AGI-1067 and AGI-1096 to address the accelerated inflammation of grafted blood vessels, known as transplant arteritis, common in chronic organ transplant rejection.

    However, right now investors are focused solely on 1067. This is the reason to own or not own the stock, states Napodano.

    AGI-1067 is a small molecule that the company believes may treat all areas of the coronary artery susceptible to atherosclerosis in a way that cannot be achieved with any existing therapy.

    Previous data, although mixed, looks encouraging with regard to the mechanism and activity, states Napodano. Meeting the primary end-point in the currently ongoing Phase III trial called ARISE may be difficult to achieve, but we believe that AGIX can gain approval with 1067 as long as it demonstrates a statistically significant reduction in plaque.

    AtheroGenics negotiated with the FDA to increase the sample size for the Phase III trial from 4,000 to 6,000 patients, eliminate the minimum 12-month follow-up period, and decrease the target number of primary events from 1,160 to 990, reports the company. This revised target number will continue to yield greater than 95% statistical power to detect a 20% difference in clinical events between the patients taking AGI-1067 and those on standard of care alone, confirms AtheroGenics. Enrollment was completed in the summer of 2005, and the company anticipates announcing results from ARISE in early 2007.

    As of May 2, 2006, AtheroGenics’ market cap was $559.68 million and its outstanding shares were 37,972,000. In the first quarter ended March 31, 2006, it recorded revenue of $4.2M related to its recent licensing collaboration with AstraZeneca for the development and commercialization of AGI-1067. This revenue reflects the amortization of the up-front $50-M license fee, received in February 2006. According to Napodano, AGIX’ stock popped when this collaboration was announced. The deal allows for AGIX to capture significant upside from a successful launch and ramp of 1067.

    R&D expenses for the first quarter increased to $16.3M, compared to $16.2M for the same period in 2005. The $1.1M in noncash, stock-based compensation expense, resulting from expensing of employee stock options, impacted the R&D expenses. Development expenses for the AGI-1067 Phase III program declined moderately, primarily due to lower costs incurred to produce clinical supplies and for manufacturing scale-up activities. General and administrative expense increased to $3.7M in the first quarter of 2006 from $1.8M in the first quarter of 2005. This increase was driven by stock-based compensation expense of $935,000 and higher professional fees. AtheroGenics reported a net loss of $19.2M, or $0.49 per share, for the first quarter, compared to a net loss of $18.6M, or $0.50 per share, for the same period in 2005.

    This year the company’s focus is on AGI-1067. While there is the possibility that it may not meet the primary end-point of 20% reduction in death, according to Napodano, there is commercialization potential as long as there is any mortality benefit. If 1067 fails outright, AGIX stock could take a serious tumble. However, if it is successful, the stock could be in for a big move. Based on our model and the probability of each outcome, we believe the stock is undervalued."



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