Georgia
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58-2108232
|
(State
of incorporation)
|
(I.R.S.
Employer Identification Number)
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PART
I. FINANCIAL INFORMATION
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Page No.
|
Item
1. Condensed Financial Statements (unaudited)
|
|
Condensed
Balance Sheets
|
|
March
31, 2008 and December 31,
2007
|
1
|
Condensed
Statements of Operations
|
|
Three
months ended March 31, 2008 and
2007
|
2
|
Condensed
Statements of Cash Flows
|
|
Three
months ended March 31, 2008 and
2007
|
3
|
Notes
to Condensed Financial
Statements
|
4
|
Item
2. Management’s Discussion and Analysis of Financial
Condition
|
|
and
Results of
Operations
|
8
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
14
|
Item
4. Controls and
Procedures
|
14
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PART
II. OTHER INFORMATION
|
|
Item
6. Exhibits
|
14
|
SIGNATURES
|
15
|
March
31,
|
December
31,
|
||||||
2008
|
2007
|
||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash
equivalents
|
$ | 73,944,616 | $ | 74,795,388 | |||
Short-term
investments
|
2,012,415 | 18,080,032 | |||||
Accounts
receivable
|
58,065 | 2,634,422 | |||||
Prepaid
expenses and other current
assets
|
728,869 | 1,290,260 | |||||
Total
current
assets
|
76,743,965 | 96,800,102 | |||||
Equipment
and leasehold improvements, net of accumulated
depreciation
|
|||||||
and
amortization
|
2,163,744 | 2,361,053 | |||||
Debt
issuance costs and other
assets
|
3,631,167 | 3,977,873 | |||||
Total
assets
|
$ | 82,538,876 | $ | 103,139,028 | |||
Liabilities
and Shareholders' Deficit
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$ | 1,504,671 | $ | 781,119 | |||
Accrued
research and
development
|
2,973,390 | 3,765,745 | |||||
Accrued
interest
|
883,992 | 2,876,150 | |||||
Accrued
compensation
|
1,728,576 | 2,258,051 | |||||
Accrued
and other
liabilities
|
772,736 | 920,736 | |||||
Current
portion of convertible notes
payable
|
30,500,000 | 35,968,750 | |||||
Total
current
liabilities
|
38,363,365 | 46,570,551 | |||||
Convertible
notes payable, net of current
portion
|
253,330,804 | 252,163,102 | |||||
Shareholders'
deficit:
|
|||||||
Preferred
stock, no par value: Authorized—5,000,000
shares
|
— | — | |||||
Common
stock, no par value:
|
|||||||
Authorized—100,000,000
shares; issued and outstanding —
|
|||||||
39,518,492
shares at March 31, 2008
|
|||||||
and
December 31,
2007
|
216,575,019 | 215,243,310 | |||||
Warrants
|
613,021 | 613,021 | |||||
Accumulated
deficit
|
(426,357,709 | ) | (411,465,815 | ) | |||
Accumulated
other comprehensive
gain
|
14,376 | 14,859 | |||||
Total
shareholders'
deficit
|
(209,155,293 | ) | (195,594,625 | ) | |||
Total
liabilities and shareholders'
deficit
|
$ | 82,538,876 | $ | 103,139,028 | |||
Three
months ended
|
||||||||
March 31, | ||||||||
2008
|
2007
|
|||||||
Revenues:
|
||||||||
License
fees
|
$ | — | $ | 6,250,000 | ||||
Research
and
development
|
— | 5,211,252 | ||||||
Total
revenues
|
— | 11,461,252 | ||||||
Operating
expenses:
|
||||||||
Research
and
development
|
9,250,062 | 19,964,275 | ||||||
Marketing,
general and
administrative
|
3,135,159 | 3,945,503 | ||||||
Total
operating
expenses
|
12,385,221 | 23,909,778 | ||||||
Operating
loss
|
(12,385,221 | ) | (12,448,526 | ) | ||||
Interest
and other
income
|
893,637 | 1,883,683 | ||||||
Interest
expense
|
(3,400,310 | ) | (2,087,781 | ) | ||||
Net
loss
|
$ | (14,891,894 | ) | $ | (12,652,624 | ) | ||
Net
loss per share –
|
||||||||
basic
and
diluted
|
$ | (0.38 | ) | $ | (0.32 | ) | ||
Weighted
average shares
|
||||||||
outstanding
– basic and
diluted
|
39,518,492 | 39,468,054 | ||||||
Three
months ended
|
|||||||
March
31,
|
|||||||
2008
|
2007
|
||||||
Operating
activities
|
|||||||
Net
loss
|
$ | (14,891,894 | ) | $ | (12,652,624 | ) | |
Adjustments
to reconcile net loss to net cash
|
|||||||
used
in operating activities:
|
|||||||
Stock-based
compensation
|
1,331,709 | 2,597,004 | |||||
Amortization
on 4.5% convertible notes due 2011
|
1,167,702 | — | |||||
Amortization
of debt issuance
costs
|
325,371 | 370,281 | |||||
Depreciation
and
amortization
|
197,309 | 265,233 | |||||
Amortization
of deferred
revenue
|
— | (6,225,583 | ) | ||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
2,576,357 | (44,976 | ) | ||||
Prepaid
expenses and other
assets
|
582,726 | 91,405 | |||||
Accounts
payable
|
723,552 | (1,301,973 | ) | ||||
Accrued
research and
development
|
(792,355 | ) | (2,256,073 | ) | |||
Accrued
interest
|
(1,992,158 | ) | (1,717,500 | ) | |||
Accrued
compensation
|
(529,475 | ) | (606,237 | ) | |||
Accrued
and other
liabilities
|
(148,000 | ) | 140,869 | ||||
Net
cash used in operating
activities
|
(11,449,156 | ) | (21,340,174 | ) | |||
Investing
activities
|
|||||||
Sales
and maturities of short-term
investments
|
16,067,134 | 34,408,824 | |||||
Purchases
of short-term
investments
|
— | (18,812,481 | ) | ||||
Purchases
of equipment and leasehold improvements
|
— | (164,014 | ) | ||||
Net
cash provided by investing
activities
|
16,067,134 | 15,432,329 | |||||
Financing
activities
|
|||||||
Retirement
of 4.5% convertible notes due
2008
|
(5,468,750 | ) | — | ||||
Proceeds
from the exercise of common stock options
|
— | 15,555 | |||||
Net
cash (used in) provided by financing activities
|
(5,468,750 | ) | 15,555 | ||||
Decrease
in cash and cash
equivalents
|
(850,772 | ) | (5,892,290 | ) | |||
Cash
and cash equivalents at beginning of
period
|
74,795,388 | 87,846,079 | |||||
Cash
and cash equivalents at end of
period
|
$ | 73,944,616 | $ | 81,953,789 | |||
Supplemental
disclosures
|
|||||||
Interest
paid
|
$ | 3,899,396 | $ | 3,435,000 |
Three
months ended
|
|
March
31, 2008
|
|
Expected
volatility
|
84.88%
|
Expected
term
|
5 years
|
Risk
free interest
rate
|
2.82%
|
Fair
value of
grants
|
$ 0.27
|
2008
Notes
|
$ | 30,500,000 | ||
2011
Notes
|
71,898,000 | |||
2012
Notes
|
200,000,000 | |||
Face
value of convertible
notes
|
271,898,000 | |||
Discount
on the 2011 Notes
|
(19,072,320 | ) | ||
Premium
on the 2011
Notes
|
505,124 | |||
Total
2011 Notes and 2012
Notes
|
$ | 253,330,804 |
Three
months ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
Direct
external AGI-1067
costs
|
$ | 5,435,987 | $ | 10,442,900 | ||||
Unallocated
internal costs and other programs
|
3,814,075 | 9,521,375 | ||||||
Total
research and
development
|
$ | 9,250,062 | $ | 19,964,275 |
Payments
Due by Period
|
|||||||||
Total
|
2008
|
2009-2010
|
2011-2012
|
Thereafter
|
|||||
Contractual
obligations
|
|||||||||
Convertible
notes
|
$
302,398,000
|
$
30,500,000
|
$ —
|
$
271,898,000
|
$ —
|
||||
Interest
on convertible
notes
|
22,392,480
|
3,803,955
|
12,470,820
|
6,117,705
|
—
|
||||
Operating
leases
|
1,160,148
|
945,497
|
214,651
|
—
|
—
|
||||
Total
contractual obligations
|
$
325,950,628
|
$
35,249,452
|
$
12,685,471
|
$
278,015,705
|
$ —
|
•
|
the
cost of commercialization activities, including product marketing, sales
and distribution;
|
|
•
|
the
costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related
costs; and
|
·
|
our
inability to successfully develop and commercialize
AGI-1067;
|
·
|
our
inability to raise additional capital before or after the maturity date of
the 2008 Notes, enter into collaboration arrangements for AGI-1067 or
restructure the 2008 Notes before they become due, we may seek relief
under the Bankruptcy Code;
|
·
|
the
actual results of clinical studies of AGI-1067 to treat diabetes and
related regulatory judgments concerning AGI-1067 for use in diabetes
management;
|
·
|
if
our common stock is no longer traded on a national securities exchange or
system of automated quotations, the holders of our convertible notes have
the right to require us to immediately repay amounts outstanding under
such notes, together with accrued interest up to such
date;
|
·
|
our
ability to generate positive cash flow in light of our history of
operating losses;
|
·
|
generally
evolving regulatory requirements for drug product approval and
marketing;
|
·
|
our
ability to successfully develop AGI-1096 or our other product
candidates;
|
·
|
our
ability to commercialize our product candidates if we fail to demonstrate
adequately their safety
|
and
efficacy;
|
|
·
|
possible
delays in our clinical trials;
|
·
|
our
inability to predict whether or when we will obtain regulatory approval to
commercialize our
|
product
candidates or the timing of any future revenue from these product
candidates;
|
|
·
|
our
need to comply with applicable regulatory requirements in the manufacture
and distribution
|
of
our products to avoid incurring penalties that my inhibit our ability to
commercialize our product;
|
|
·
|
regulatory
authorities may require that we conduct additional clinical trials or
modify existing clinical trials;
|
·
|
our
ability to protect adequately or enforce our intellectual property rights
or secure rights to third
|
party
patents;
|
|
·
|
the
ability of our competitors to develop and market anti-inflammatory
products that are more
|
effective,
have fewer side effects or are less expensive than our current or future
product candidates;
|
|
·
|
third
parties' failure to synthesize and manufacture our product candidates,
which could delay our
|
clinical
trials or hinder our commercialization prospects;
|
|
·
|
our
ability to create sales, marketing and distribution capabilities or enter
into agreements with third
|
parties
to perform these functions;
|
|
·
|
our
ability to attract, retain and motivate skilled personnel and cultivate
key academic collaborations;
|
·
|
our
ability to obtain an adequate level of reimbursement or acceptable prices
for our products;
|
·
|
we
may face product liability lawsuits which may cause us to incur
substantial financial loss or we may
|
be
unable to obtain future product liability insurance at reasonable prices,
if at all, either of which
|
|
could
diminish our ability to commercialize our future
products;
|
·
|
our
ability to repay $30.5 million principal amount on the 4.5% convertible
notes due September 1, 2008 and our other notes as they become due;
and
|
·
|
the
conversion of our convertible notes would dilute the ownership interest of
existing shareholders
|
and
could adversely affect the market price of our common
stock.
|
Exhibit
10.1*
|
-
|
Manufacturing
and Supply Agreement between AtheroGenics, Inc. and ISP Pharma Systems LLC
dated April 1, 2008.
|
Exhibit
31.1
|
-
|
Certifications
of Chief Executive Officer under Rule 13a-14(a).
|
Exhibit
31.2
|
-
|
Certifications
of Chief Financial Officer under Rule 13a-14(a).
|
Exhibit
32
|
-
|
Certifications
of Chief Executive Officer and Chief Financial Officer under Section
1350.
|
|
*
|
Certain
confidential information contained in this document has been omitted and
filed separately with the Commission pursuant to a request for conditional
treatment.
|
ATHEROGENICS,
INC.
|
|
Date: May
9, 2008
|
/s/MARK P. COLONNESE |
Mark
P. Colonnese
|
|
Executive
Vice President, Commercial Operations and
|
|
Chief
Financial Officer
|
|