UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


_________________





**FORM
      10-Q**


___________





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





For
      the
      quarterly period ended March 31, 2006





Commission
      File No. 0-31261





**ATHEROGENICS,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Georgia**
            **58-2108232**(State
                of incorporation)
            (I.R.S.
                Employer Identification Number)





**8995
      Westside Parkway, Alpharetta, Georgia 30004**


(Address
      of registrant's principal executive offices, including zip code)





_______________________





(Registrant's
      telephone number, including area code): **(678)
      336-2500**





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes [ X ]  No
      [
      ]




Indicate
      by check mark whether the
      registrant is a large accelerated filer, an accelerated filer, or a
      non-accelerated filer (as defined in Rule 12b-2 of the Act).


Large
      accelerated filer [ ]  Accelerated
      filer [ X ]   Non-accelerated
      filer [ ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes [ ]  No
      [ X
      ]





As
      of May
      5, 2006 there were 39,435,090 shares of the registrant's common stock
      outstanding.





_________________________







**ATHEROGENICS,
      INC.**


**FORM
      10-Q**


**INDEX**








**PART
                I. FINANCIAL INFORMATION**
            **Page
                No.**Item
                1. Condensed Financial Statements (unaudited)Condensed
                Balance SheetsMarch
                31, 2006 and December 31, 2005
            1Condensed
                Statements of OperationsThree
                months ended March 31, 2006 and 2005
            2Condensed
                Statements of Cash FlowsThree
                months ended March 31, 2006 and 2005
            3Notes
                to Condensed Financial Statements
            4Item
                2. Management's Discussion and Analysis of Financial Conditionand Results of Operations
            8Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            15Item
                4. Controls and Procedures
            15**PART
                II. OTHER INFORMATION**Item
                1. Legal Proceedings
            15Item
                6. Exhibits
            15**SIGNATURES**
            16








i


**PART
      I. - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**ATHEROGENICS,
      INC.**


**CONDENSED
      BALANCE SHEETS**


**(Unaudited)**





**March
                31,**
            
            **December
                31,****2006**
            
            **2005****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            81,934,748
            
            $
            82,831,679Short-term
                investments
            
            
            127,535,049
            
            
            99,672,844Prepaid
                expenses
            
            
            3,708,592
            
            
            2,639,900Interest
                and other receivables
            
            
            2,921,896
            
            
            900,192Total
                current assets
            
            
            216,100,285
            
            
            186,044,615Equipment
                and leasehold improvements, net of accumulated
                depreciationand
                amortization
            
            
            4,405,100
            
            
            4,108,462Debt
                issuance costs and other assets
            
            
            6,734,268
            
            
            7,344,450Total
                assets
            
            $
            227,239,653
            
            $
            197,497,527**Liabilities
                and Shareholders' Deficit**Current
                liabilities:Accounts
                payable
            
            $
            3,479,290
            
            $
            2,188,461Accrued
                research and development
            
            
            3,036,223
            
            
            3,946,970Accrued
                and other liabilities
            
            
            1,368,492
            
            
            1,344,876Accrued
                interest
            
            
            770,000
            
            
            2,750,000Accrued
                compensation
            
            
            533,790
            
            
            2,649,640Current
                portion of deferred revenue
            
            
            25,000,000
            
            
            —Total
                current liabilities
            
            
            34,187,795
            
            
            12,879,947Convertible
                notes payable and equipment loan, net of current portion
            
            
            286,045,095
            
            
            300,053,796Long-term
                portion of deferred revenue
            
            
            20,833,333
            
            
            —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 —39,381,022
                and 38,143,678 shares at March 31, 2006and
                December 31, 2005, respectively
            
            
            199,607,034
            
            
            178,771,376Warrants
            
            
            613,021
            
            
            620,223Accumulated
                deficit
            
            
            (313,899,681
            )
            
            (294,674,874
            )Accumulated
                other comprehensive loss
            
            
            (146,944
            )
            
            (152,941
            )Total
                shareholders' deficit
            
            
            (113,826,570
            )
            
            (115,436,216
            )Total
                liabilities and shareholders' deficit
            
            $
            227,239,653
            
            $
            197,497,527


*The
      accompanying notes are an integral part of these condensed financial
      statements.*




1


**ATHEROGENICS,
      INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**




**Three
                months ended****March
                31,****2006**
            
            **2005**License
                fee revenue
            
            $
            4,166,667
            
            $
            —Operating
                expenses:Research and development
            
            
            16,260,622
            
            
            16,155,070General
                and administrative
            
            
            3,707,333
            
            
            1,820,818Total operating expenses
            
            
            19,967,955
            
            
            17,975,888Operating
                loss
            
            
            (15,801,288
            )
            
            (17,975,888
            )Interest
                and other income
            
            
            2,205,234
            
            
            1,447,904Interest
                expense
            
            
            (2,107,517
            )
            
            (2,103,573
            )Other
                expense
            
            
            (3,521,236
            )
            
            —Net
                loss
            
            $
            (19,224,807
            )
            $
            (18,631,557
            )Net
                loss per share - basic and diluted
            
            $
            (0.49
            )
            $
            (0.50
            )Weighted
                average shares outstanding - basic and diluted
            
            
            39,202,076
            
            
            37,532,613


*The
      accompanying notes are an integral part of these condensed financial
      statements.*




2


**ATHEROGENICS,
      INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**




**Three
                          months ended****March
                          31,****2006**
                      
                      **2005****Operating
                          activities**Net
                          loss
                      
                      $
                      (19,224,807
                      )
                      $
                      (18,631,557
                      )Adjustments
                          to reconcile net loss to net cash provided by(used in) operating activities:Amortization of license fee
                      
                      
                      (4,166,667
                      )
                      
                      —Loss on debt conversion
                      
                      
                      3,524,236
                      
                      
                      —Stock-based compensation
                      
                      
                      2,039,090
                      
                      
                      43,393Depreciation and amortization
                      
                      
                      221,393
                      
                      
                      189,872Amortization of debt issuance costs
                      
                      
                      373,253
                      
                      
                      318,007Changes in operating assets and liabilities:Interest and other receivables
                      
                      
                      (2,021,704
                      )
                      
                      (475,566
                      )Prepaid expenses
                      
                      
                      (1,068,692
                      )
                      
                      1,587,439Accounts payable
                      
                      
                      1,290,829
                      
                      
                      606,639Accrued compensation
                      
                      
                      (2,115,850
                      )
                      
                      (785,269
                      )Accrued interest
                      
                      
                      (1,704,750
                      )
                      
                      (466,667
                      )Accrued research and development
                      
                      
                      (910,747
                      )
                      
                      (1,638,953
                      )Accrued and other liabilities
                      
                      
                      23,211
                      
                      
                      54,998Deferred revenue
                      
                      
                      50,000,000
                      
                      
                      —Net cash provided by (used in) operating activities
                      
                      
                      26,258,795
                      
                      
                      (19,197,664
                      )**Investing
                          activities**Purchases
                          of short-term investments
                      
                      
                      (30,087,721
                      )
                      
                      (80,437,505
                      )Sales
                          and maturities of short-term investments
                      
                      
                      2,231,513
                      
                      
                      2,890,272Purchases
                          of equipment and leasehold improvements
                      
                      
                      (518,031
                      )
                      
                      (86,114
                      )Net cash used in investing activities
                      
                      
                      (28,374,239
                      )
                      
                      (77,633,347
                      )**Financing
                          activities**Proceeds
                          from the exercise of common stock options
                      
                      
                      1,226,809
                      
                      
                      816,002Payments
                          on equipment loan facility
                      
                      
                      (8,296
                      )
                      
                      (83,622
                      )Proceeds
                          from the issuance of 1.5% convertible notes
                      
                      
                      —
                      
                      
                      193,566,977Net cash provided by financing activities
                      
                      
                      1,218,513
                      
                      
                      194,299,357(Decrease)
                          increase in cash and cash equivalents
                      
                      
                      (896,931
                      )
                      
                      97,468,346Cash
                          and cash equivalents at beginning of period
                      
                      
                      82,831,679
                      
                      
                      15,888,919Cash
                          and cash equivalents at end of period
                      
                      $
                      81,934,748
                      
                      $
                      113,357,265**Supplemental
                          disclosures**Interest
                          paid
                      
                      $
                      3,435,000
                      
                      $
                      2,252,233
 *The
            accompanying notes are an integral part of these condensed financial
            statements.*




3


**ATHEROGENICS,
      INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**(Unaudited)**





**1.
      Organization and Nature of Operations**





AtheroGenics,
      Inc. (“AtheroGenics”) was incorporated on November 23, 1993 (date of inception)
      in the State of Georgia to focus on the discovery, development and
      commercialization of novel therapeutics for the treatment of chronic
      inflammatory diseases, including coronary heart disease, organ transplant
      rejection, rheumatoid arthritis and asthma.





**2.
      Basis of Presentation**





The
      accompanying unaudited condensed financial statements reflect all adjustments
      (consisting solely of normal recurring adjustments) which management considers
      necessary for a fair presentation of the financial position, results of
      operations and cash flows of AtheroGenics for the interim periods presented.
      Certain footnote disclosures normally included in financial statements prepared
      in accordance with U.S. generally accepted accounting principles have been
      condensed or omitted from the interim financial statements as permitted by
      the
      rules and regulations of the Securities and Exchange Commission (the “SEC”).
      Interim results are not necessarily indicative of results for the full year.





The
      interim results should be read in conjunction with the financial statements
      and
      notes thereto included in AtheroGenics' Annual Report on Form 10-K for the
      year
      ended December 31, 2005, filed with the SEC on March 10, 2006 (the “Form 10-K”).
      Shareholders are encouraged to review the Form 10-K for a broader discussion
      of
      the opportunities and risks inherent in AtheroGenics' business. Copies of the
      Form 10-K are available on request.





**3.
      Revenue Recognition**





AtheroGenics
      recognizes revenue in accordance with the SEC’s Staff Accounting Bulletin
      (“SAB”) No. 101, *Revenue
      Recognition in Financial Statements,* as
      amended by SAB No. 104, *Revenue
      Recognition,* (“SAB
      104”). SAB 104 provides guidance in applying U.S. generally accepted accounting
      principles to revenue recognition issues, and specifically addresses revenue
      recognition for upfront, nonrefundable fees received in connection with research
      collaboration agreements.





In
      accordance with SAB 104, license fees, which are nonrefundable, are recognized
      when the related license agreements specify that no further efforts or
      obligations are required of us. In February 2006, AtheroGenics received a $50
      million license fee in connection with our license and collaboration agreement
      with AstraZeneca. The upfront license payment will be recognized on a
      straight-line basis over the 24-month period that AtheroGenics estimates it
      is
      obligated to provide services to the licensee. In 2006, revenues will be
      approximately $23 million related to the amortization of the upfront license
      fee
      from AstraZeneca.





**4.
      Net Loss per Share**





Statement
      of Financial Account Standards (“SFAS”) No. 128, *Earnings
      per Share,* requires
      presentation of both basic and diluted earnings per share. Basic earnings per
      share is computed by dividing net income (loss) by the weighted average number
      of shares of common stock outstanding during the period. Diluted earnings per
      share is computed in the same manner as basic earnings per share except that
      diluted earnings per share reflects the potential dilution that would occur
      if
      outstanding options, warrants and convertible notes were exercised. Because
      AtheroGenics reported a net loss for all periods presented, shares associated
      with stock options, warrants and convertible notes are not included because
      their effect would be antidilutive. Basic and diluted net loss per share amounts
      are the same for the periods presented.




4


**5.** **Stock-Based
      Compensation**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123(R), *Share-Based
      Payment,* (“SFAS
      123R”),which revises SFAS No. 123 *Accounting
      for Stock-Based Compensation* (“SFAS
      123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”). SFAS 123R ** requires
      that companies recognize expense associated with stock option grants and other
      equity instruments to employees in the financial statements. SFAS 123R is
      effective January 1, 2006 and applies to all grants after the effective date
      and
      to the unvested portion of stock options outstanding as of the effective
      date.





On
      January 1, 2006, AtheroGenics adopted SFAS 123R using the modified prospective
      method. For the three months ended March 31, 2006, AtheroGenics recorded
      approximately $2.0 million of stock-based compensation expense of which $1.1
      million is included in research and development expense and $935,000 is included
      in general and administrative expense. As a result of adopting SFAS 123R,
      AtheroGenics’ net loss per share is impacted $(0.05) for the three months ended
      March 31, 2006. AtheroGenics has a net operating loss carryforward as of
      March 31, 2006, and therefore no excess tax benefits for tax deductions related
      to the stock-based awards were recognized. As of March 31, 2006, unamortized
      stock-based compensation expenses of approximately $21.7 million remain to
      be
      recognized over a weighted average period of approximately three
      years.





AtheroGenics
      estimated the fair value of stock options granted during the three months ended
      March 31, 2006 using the Black-Scholes option valuation model. AtheroGenics
      has calculated a 5.90% forfeiture rate based on historical data. Expected
      volatility is based on historical volatility of AtheroGenics’ common stock. The
      expected term of the stock options granted is also based on historical data
      and
      represents the period of time that stock options granted are expected to be
      outstanding. The risk free rate is based on the U.S. Treasury rates in effect
      at
      the time of the grant for periods corresponding with the expected term of the
      options. The weighted average assumptions used in the Black-Scholes model for
      options granted are as follows:





Expected
                volatility
            70.70%Expected
                term
            5
                yearsRisk
                free interest rate
            4.59%Fair
                value of grants
            $9.78





Prior
      to
      the adoption of SFAS 123R, AtheroGenics accounted for its stock-based
      compensation expenses under the provision of APB 25 and related interpretations.
      Under APB 25, if the exercise price of employee stock options equals or exceeds
      the market price of the underlying stock on the date of grant, no compensation
      expense is recognized. AtheroGenics had adopted the provisions of SFAS 123
      as
      amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure,* using
      pro forma disclosure only. The following table illustrates the effect on net
      loss and net loss per share as if the fair value based method had been applied
      to all outstanding and unvested options based on the provisions of SFAS
      123.





**Three
                months ended****March
                31, 2005**Net
                loss, as reported
            $
            (18,631,557
            )Add:
                Stock-based employee compensation expenseincluded in reported net loss
            
            —Deduct:
                Total stock-based employee compensation expensedetermined under fair value based method for all awards
            
            (2,410,725
            )Pro
                forma net loss
            $
            (21,042,282
            )Net
                loss per share:Basic
                and diluted, as reported
            $
            (0.50
            )Basic
                and diluted, pro forma
            $
            (0.56
            )




5


For
      stock
      options granted during the three months ended March 31, 2005, the pro forma
      compensation expense under SFAS 123 was determined using the following weighted
      average assumptions:





Expected
                volatility
            78.74%Expected
                term
            5
                yearsRisk
                free interest rate
            4.33%Fair
                value of grants
            $10.73





AtheroGenics
      continues to account for transactions in which services are received in exchange
      for equity instruments based on the fair value of such services received from
      non-employees, in accordance with SFAS 123 and Emerging Issues Task Force
      ("EITF") Issue No. 96-18, *Accounting
      for Equity Instruments that Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.*





As
      of
      January 1, 2006, AtheroGenics had the following equity incentive plans from
      which stock-based compensation awards could be granted: the Equity Ownership
      Plan, the 2001 Equity Ownership Plan and the 2004 Equity Ownership Plan (the
      “Plans”). All of the Plans have been approved by AtheroGenics’
shareholders.





Under
      the
      Plans, options to purchase AtheroGenics' common stock may be granted to
      employees, directors, consultants or contractors with exercise prices not less
      than the fair value of the shares on the dates of grant. As of March 31,
      2006, AtheroGenics had 7,602,496 shares of common stock reserved for issuance
      under the Plans in connection with outstanding options or future grants. The
      Plans allow for grants of non-qualified options, incentive stock options and
      shares of restricted stock. Non-qualified options granted under the Plans may
      vest immediately for non-employees, but vest over a one to four-year period
      for
      employees and directors. Incentive stock options generally vest over four years.




The
      following is a summary of all stock option activity for the three months ended
      March 31, 2006.





**Weighted****Weighted**
            
            **Average**
            
            **Aggregate****Number
                of**
            
            **Average**
            
            **Remaining**
            
            **Intrinsic****Shares**
            
            **Exercise
                Price**
            
            **Contractual
                Life**
            
            **Value**Outstanding
                at January 1, 2006
            
            4,375,632
            
            $
            11.17Granted
            
            950,609
            
            
            15.82Exercised
            
            (152,344
            )
            
            8.05Canceled
            
            (44,099
            )
            
            17.77Outstanding
                at March 31, 2006
            
            5,129,798
            
            
            12.06
            
            
            7.19
            
            $
            29,179,218Exercisable
                at March 31, 2006
            
            2,952,514
            
            $
            8.29
            
            
            5.88
            
            $
            26,745,450





**6.
      Convertible Notes Payable and Equipment Loan**





In
      August
      2003, AtheroGenics issued $100.0 million in aggregate principal amount of 4.5%
      convertible notes due September 1, 2008 with interest payable semi-annually
      in March and September. Net proceeds to AtheroGenics were approximately $96.7
      million, after deducting expenses and underwriter’s discounts and commissions.
      The issuance costs related to the notes are recorded as debt issuance costs
      and
      other assets and are being amortized to interest expense over the five-year
      life
      of the notes. The 4.5% convertible notes may be converted at the option of
      the
      holder into shares of AtheroGenics common stock prior to the close of business
      on September 1, 2008 at a conversion rate of 65.1890 shares per $1,000 principal
      amount of notes, representing a conversion price of approximately $15.34 per
      share. In January 2006, AtheroGenics exchanged $14.0 million in aggregate
      principal amount of the 4.5% convertible notes for approximately 1.1 million
      shares of AtheroGenics common stock. In accordance with SFAS No. 84, *Induced
      Conversion of Convertible Debt* ,
      this
      transaction resulted in a non-cash charge of approximately $3.5 million related
      to the premium paid in excess of the conversion price in order to induce
      conversion of the notes.


6





In
      January 2005, AtheroGenics issued $200.0 million in aggregate principal amount
      of 1.5% convertible notes due February 1, 2012 with interest payable
      semi-annually in February and August. Net proceeds to AtheroGenics were
      approximately $193.6 million, after deducting expenses and underwriter’s
      discounts and commissions. The issuance costs related to the notes are recorded
      as debt issuance costs and other assets and are being amortized to interest
      expense over the seven-year life of the notes. The 1.5% convertible notes are
      convertible into shares of common stock, at the option of the holder, at a
      conversion rate of 38.5802 shares per $1,000 principal amount of notes, which
      represents a conversion price of approximately $25.92 per share.





The
      conversion rate for both series of notes is subject to adjustment for stock
      dividends and other dilutive transactions. In addition, AtheroGenics’ Board of
      Directors may, to the extent permitted by applicable law, increase the
      conversion rate provided that the Board of Directors has determined that such
      increase is in the best interest of AtheroGenics and such increase remains
      effective for a period of at least twenty days. AtheroGenics may also be
      required to redeem the notes on an accelerated basis if AtheroGenics defaults
      on
      certain other debt obligations or if AtheroGenics common stock or consideration
      received in exchange for such common stock is not tradable on a national
      securities exchange or system of automated quotations.





As
      of
      March 31, 2006, AtheroGenics has reserved a total of 13,322,307 shares of common
      stock for future issuances in connection with the 4.5% convertible notes and
      the
      1.5% convertible notes. In addition, as of March 31, 2006, there was
      approximately $270,000 of accrued interest expense related to the 4.5% notes,
      which is due September 1, 2006 and $500,000 of accrued interest expense related
      to the 1.5% convertible notes, which is due August 1, 2006.





In
      June
      2005, AtheroGenics entered into an equipment loan for approximately $103,800
      for
      the purchase of software and computer equipment. The loan is payable over 36
      months at an annual interest rate of 4.78%.





**7.
      Commitments and Contingencies**





Except
      as
      set forth below, AtheroGenics' commitments and contingencies have not changed
      significantly from those previously discussed in its Form 10-K.





Purported
      securities class action lawsuits were filed against AtheroGenics and some of
      its
      executive officers and directors in the United States District Court for the
      Southern District of New York on January 5, 2005 and February 8, 2005 (the
      "SDNY Actions") and in the United States District Court for the Northern
      District of Georgia, Atlanta division on January 7, 2005, January 10, 2005,
      January 11, 2005 and January 25, 2005 (the "NDGA Actions"). Plaintiffs filed
      separate motions to consolidate these lawsuits in both the Southern District
      of
      New York and the Northern District of Georgia on March 7, 2005.  In
      addition, three class members simultaneously moved for
      appointment as lead plaintiffs in both districts on March 7, 2005. On April
      18, 2005, the Honorable Richard J. Holowell ordered the SDNY Actions
      consolidated under the caption " *In
      re
      Atherogenics Securities Litigation* "
      (the
“SDNY Action”) and appointed lead plaintiff and co-lead counsel.  On
      July 5, 2005, AtheroGenics filed a motion to transfer the SDNY Action to
      the Northern District of Georgia. On July 14, 2005, the plaintiffs voluntarily
      dismissed the NDGA Actions. On March 31, 2006, Judge Holowell granted the motion
      to have the SDNY Action transferred to the Northern District of Georgia.
 The allegations in these lawsuits relate to AtheroGenics’ disclosures
      regarding the results of the CART-2 clinical trial for AGI-1067. The complaint
      seeks unspecified damages on behalf of a purported class of purchasers of
      AtheroGenics’ securities during the period after these disclosures were made in
      September 2004 to December 31, 2004. AtheroGenics believes that it has
      meritorious defenses to the plaintiffs’ allegations and intends to defend this
      matter vigorously.





In
      March
      2005, AtheroGenics committed to purchase approximately $3.5 million of
      commercial manufacturing equipment for AGI-1067, to be delivered in 2006. The
      cost of this equipment will be shared by both AtheroGenics and AstraZeneca
      as
      part of the joint license and collaboration agreements that were signed in
      December 2005.





In
      October 2005, AtheroGenics entered into a commercial supply agreement with
      The
      Dow Chemical Company for the manufacture of the bulk active ingredient of
      AGI-1067. The agreement also provides for the manufacture of Probucol USP,
      the
      starting material for AGI-1067. Under AtheroGenics’ joint license and


7


collaboration
      agreements with AstraZeneca, the manufacturing agreement with Dow has been
      assigned to AstraZeneca, which is responsible for all of the AGI-1067
      manufacturing, packaging and labeling activities.





**Item
      2.** ***Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations***





*The
      following should be read with the financial statements and related footnotes
      and
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations included in AtheroGenics' Annual Report on Form 10-K for the fiscal
      year ended December 31, 2005. The results discussed below are not necessarily
      indicative of the results to be expected in any future periods. The following
      discussion contains forward-looking statements that are subject to risks and
      uncertainties which could cause actual results to differ from the statements
      made. These risks are set forth in more detail in our Form 10-K. In this report,
      "AtheroGenics," "we," "us" and "our" refer to AtheroGenics,
      Inc.*





**Overview**





AtheroGenics
      is a research-based pharmaceutical company focused on the discovery, development
      and commercialization of novel drugs for the treatment of chronic inflammatory
      diseases, including coronary heart disease, organ transplant rejection,
      rheumatoid arthritis and asthma. We have developed a proprietary vascular
      protectant, or v-protectant ® ,
      technology platform to discover drugs to treat these types of diseases. Based
      on
      our v-protectant ® platform, we have two drug development programs in clinical trials and are
      pursuing a number of other preclinical programs.





AGI-1067
      is our v-protectant ® candidate that is most advanced in clinical development. AGI-1067 is designed
      to
      benefit patients with coronary heart disease, or CHD, which is atherosclerosis
      of the blood vessels of the heart. Atherosclerosis is a common disease that
      results from inflammation and the buildup of plaque in arterial blood vessel
      walls.





In
      2004,
      we completed a Phase IIb clinical trial called CART-2, a 465-patient study
      that
      examined the effect of 12 months of AGI-1067 therapy on atherosclerosis and
      post-angioplasty restenosis. Two leading cardiac intravascular ultrasound
      laboratories independently analyzed the final data from CART-2. The primary
      endpoint of the trial was a change in coronary atherosclerosis, measured as
      total plaque volume after a 12-month treatment period compared to baseline
      values. Combined results of the final analysis from the two laboratories, which
      were based on an evaluation of intravascular ultrasounds from approximately
      230
      patients in the study, indicate that AGI-1067 reduced plaque volume by an
      average of 2.3%, which was statistically significant. Results from the patient
      group receiving both placebo and “standard of care” indicated a plaque volume
      measure that was not statistically different from baseline. While the plaque
      regression observed in the AGI-1067 group exceeded that observed in the standard
      of care group numerically, the difference did not reach statistical
      significance, although a trend towards significance was seen in one laboratory’s
      analysis. An important secondary endpoint from the trial, change in plaque
      volume in the most severely diseased subsegment, showed statistically
      significant regression from baseline by an average of 4.8%. The results also
      demonstrated a significant reduction in myeloperoxidase, an inflammatory
      biomarker that correlates with future cardiovascular events. Overall adverse
      event rates were similar in the AGI-1067 and standard of care groups, and
      AGI-1067 was generally well tolerated.





Based
      on
      the results of an End of Phase II meeting with the Food and Drug Administration
      (“FDA”), we developed a pivotal Phase III clinical trial protocol to evaluate
      AGI-1067 for the treatment of atherosclerosis. The Phase III protocol received
      a
      Special Protocol Assessment from the FDA. A Special Protocol Assessment is
      written confirmation from the FDA that the protocol is adequately designed
      to
      support a New Drug Application (“NDA”) for the drug in the specified treatment
      area.





In
      2003,
      we initiated the pivotal Phase III trial, referred to as ARISE (Aggressive
      Reduction of Inflammation Stops Events), which is being conducted in cardiac
      centers in the United States, Canada, the United Kingdom and South Africa.
      ARISE
      will evaluate the impact of AGI-1067 on important outcome measures such as
      death
      due to coronary disease, myocardial infarction, stroke, coronary
      re-vascularization and unstable angina in patients who have CHD. The study
      will
      assess the incremental benefits of AGI-1067 versus the current standard of
      care
      therapies in this patient population. As such, all patients in the trial,
      including those on placebo, will be


8


receiving
      other appropriate heart disease medications, including statins and other
      cholesterol-lowering therapies, high blood pressure medications and
      anti-clotting agents.





We
      have
      completed patient enrollment with a total of 6,127 patients in the study. The
      target number of events in the study of 990 will yield greater than 95 percent
      statistical power to detect a 20 percent difference in clinical events between
      the study arms. We expect to complete the ARISE trial at the end of 2006 and
      announce the results in early 2007. Assuming positive results, we plan to file
      an NDA with the FDA as soon as possible thereafter.





In
      December 2005, we announced a license and collaboration agreement with
      AstraZeneca for the global development and commercialization of AGI-1067. Under
      the terms of the agreement, we received an upfront license fee of $50 million
      and, subject to the achievement of specific milestones, including a successful
      outcome in ARISE, we will be eligible for development and regulatory milestones
      of up to an aggregate of $300 million. The agreement also provides for
      progressively demanding sales performance related milestones, the achievement
      of
      which could result in up to an additional $650 million in the aggregate. In
      addition, we will also receive royalties on product sales. AstraZeneca has
      the
      right to terminate the license and collaboration agreement at specified periods
      as further described in our Annual Report on Form 10-K for the year ended
      December 31, 2005.





In
      October 2005, we entered into a commercial supply agreement with The Dow
      Chemical Company (“Dow”), a multinational pharmaceutical chemical manufacturing
      company, for the manufacture of the bulk active ingredient of AGI-1067. The
      agreement also provides for the manufacture of Probucol USP, the starting
      material used in the manufacturing process of AGI-1067. Under our joint license
      and collaboration agreement with AstraZeneca, the manufacturing agreement with
      Dow has been assigned to AstraZeneca which is responsible for all of the
      manufacturing, packaging and labeling.





AGI-1096,
      our second v-protectant ® candidate, is a novel antioxidant and selective anti-inflammatory agent that
      is
      being developed to address the accelerated inflammation of grafted blood
      vessels, known as transplant arteritis, common in chronic organ transplant
      rejection. We are working with Astellas Pharma Inc. (“Astellas”) to further
      develop AGI-1096 in preclinical and early-stage clinical trials. In a Phase
      I
      clinical trial investigating the safety and tolerability of oral AGI-1096 in
      combination with Astellas’ tacrolimus (Prograf ® )
      conducted in healthy volunteers, results indicated that regimens of AGI-1096
      administered alone, and concomitant with tacrolimus, were generally
      well-tolerated, and there were no serious adverse events associated with either
      regimen during the course of the study. AGI-1096 has also demonstrated
      pharmacological activity in certain preclinical studies that were conducted
      as
      part of the ongoing collaboration. In February 2006, we announced the extension
      of our collaboration with Astellas to conduct additional trials, with Astellas
      funding all development costs during the term of the agreement. Astellas will
      also retain the exclusive option to negotiate for late stage development and
      commercial rights to AGI-1096.





We
      have
      also identified additional potential v-protectant ® candidates to treat other chronic inflammatory diseases, including rheumatoid
      arthritis and asthma. We are evaluating these v-protectants ® to
      determine lead drug candidates for clinical development. We plan to develop
      these compounds rapidly and may seek regulatory fast track status, if available,
      to expedite development and commercialization.





The
      following table provides information regarding our research and development
      expenses for our major product candidates:





**Three
                months ended****March
                31,****2006**
            
            **2005**Direct
                external costs:AGI-1067
            
            $
            10,298,230
            
            $
            12,978,744Unallocated
                costs and other programs
            
            
            5,962,392
            
            
            3,176,326Total research and development
            
            $
            16,260,622
            
            $
            16,155,070





From
      inception, we have devoted the large majority of our research and development
      efforts and financial resources to support development of the AGI-1067 product
      candidate. We will retain responsibility for the ongoing


9


ARISE
      clinical trial and for regulatory filings in the United States. AstraZeneca
      will
      have full responsibility for pre-commercialization activities involving AGI-1067
      and will oversee all aspects of the marketing, sales and distribution of
      AGI-1067 on a worldwide basis. AstraZeneca will also be responsible for all
      non-U.S. regulatory filings. Spending for the AGI-1096 program in 2006 and
      2005
      was funded by our collaborative development partner, Astellas.





The
      nature, timing and costs of the efforts to complete the successful development
      of any of our product candidates are highly uncertain and subject to numerous
      risks, and therefore cannot be accurately estimated. These risks include the
      rate of progress and costs of our clinical trials, clinical trial results,
      cost
      and timing of regulatory approval and establishing commercial manufacturing
      supplies. These risks and uncertainties, and their effect on our operations
      and
      financial position, are more fully described in our risk factors included in
      our
      Form 10-K for the year ended December 31, 2005, under the headings “ *Risks
      Related to Development and Commercialization of Our Product
      Candidates*  *and
      Dependence on Third Parties”* and
      “ *Risks
      Related to Regulatory Approval of Our Product Candidates* .”





We
      have
      not derived any commercial revenues from product sales. We expect to incur
      significant losses in most years prior to deriving any such product revenue
      as
      we continue to increase research and development costs. We have funded our
      operations primarily through sales of equity and debt securities. We have
      incurred significant losses since we began operations and, as of March 31,
      2006,
      had an accumulated deficit of $313.9 million. We cannot assure you that we
      will
      become profitable or receive any milestone-related revenues under our agreement
      with AstraZeneca. We expect that losses will fluctuate from quarter to quarter
      and that these fluctuations may be substantial. Our ability to achieve
      profitability depends upon our ability, alone or with others, to complete the
      successful development of our product candidates, to obtain required regulatory
      clearances and to manufacture and market our future products.





**Critical
      Accounting Policies and Use of Estimates**





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      and
      select accounting policies that affect the amounts reported in our financial
      statements and the accompanying notes. Actual results could significantly differ
      from those estimates. We have identified the following policies and related
      estimates as critical to our business operations and the understanding of our
      results of operations. A description of these critical accounting policies
      and a
      discussion of the significant estimates and judgments associated with these
      policies are set forth below.





*Research
      and Development Accrual*





As
      part
      of the process of preparing our financial statements, we are required to
      estimate expenses that we believe we have incurred, but have not yet been billed
      for. This process involves identifying services and activities that have been
      performed by third party vendors on our behalf and estimating the level to
      which
      they have been performed and the associated cost incurred for such service
      as of
      each balance sheet date in our financial statements. Examples of expenses for
      which we accrue include fees for professional services, such as those provided
      by certain clinical research organizations and investigators in conjunction
      with
      clinical trials, and fees owed to contract manufacturers in conjunction with
      the
      manufacture of clinical trial materials. We make these estimates based upon
      progress of activities related to contractual obligations and also information
      received from vendors.




*Revenue
      Recognition*





We
      recognize revenue in accordance with the SEC’s Staff Accounting Bulletin (“SAB”)
      No. 101, *Revenue
      Recognition in Financial Statements,* as
      amended by SAB No. 104, *Revenue
      Recognition,* (“SAB
      104”). SAB 104 provides guidance in applying U.S. generally accepted accounting
      principles to revenue recognition issues, and specifically addresses revenue
      recognition for upfront, nonrefundable fees received in connection with research
      collaboration agreements.





In
      accordance with SAB 104, license fees, which are nonrefundable, are recognized
      when the related license agreements specify that no further efforts or
      obligations are required of us. In February 2006, we received a $50 million
      license fee in connection with our license and collaboration agreement with
      AstraZeneca. The upfront license


10


payment
      will be recognized on a straight-line basis over the 24-month period that we
      estimate we are obligated to provide services to the licensee. In 2006, revenues
      will be approximately $23 million related to the amortization of the upfront
      license fee from AstraZeneca.





*Stock-Based
      Compensation*





Effective
      January 1, 2006, we adopted the provisions of the Financial Accounting Standards
      Board (“FASB”) SFAS No. 123(R), *Share-Based
      Payment* (“SFAS
      123R”), which revises SFAS No. 123, *Accounting
      for Stock-Based Compensation* and
      supersedes Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* . SFAS
      123R
      requires that companies recognize compensation expense associated with stock
      option grants and other equity instruments to employees in the financial
      statements. SFAS 123R applies to all grants after the effective date and to
      the
      unvested portion of stock options outstanding as of the effective date. The
      pro
      forma disclosures previously permitted under SFAS 123 are no longer an
      alternative to financial statement recognition. We are using the
      modified-prospective method and the Black-Scholes valuation model for valuing
      the share-based payments. We will continue to account for transactions in which
      services are received in exchange for equity instruments based on the fair
      value
      of such services received from non-employees, in accordance with SFAS 123 and
      Emerging Issues Task Force ("EITF") Issue No. 96-18, *Accounting
      for Equity Instruments that Are Issued to Other than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.*





**Results
      of Operations**





**Comparison
      of the Three Months Ended March 31, 2006 and 2005**





*Revenues*





Revenues
      for the three months ended March 31, 2006 were $4.2 million. The revenues are
      attributable to the license and collaboration agreement signed in December
      2005
      with AstraZeneca for the development and commercialization of AGI-1067. This
      amount represents the earned portion of the $50.0 million license fee that
      is
      being amortized over 24 months. There were no revenues during 2005.





*Expenses*





*Research
      and Development.* Research
      and development expenses were $16.3 million for the three months ended
      March 31, 2006, compared to $16.2 million for the three months ended March
      31, 2005. The increase of $105,552, or 1%, is primarily due to $1.1 million
      of
      non-cash stock-based compensation expense resulting from the adoption of SFAS
      123R. In addition, there were higher internal costs for our development staff.
      Partially offsetting these increases were lower development expenses for
      AtheroGenics’ ongoing AGI-1067 Phase III program primarily due to lower costs
      incurred to produce clinical supplies and for manufacturing scale-up activities.





*General
      and Administrative.* General
      and administrative expenses were $3.7 million for the three months ended
      March 31, 2006, compared to $1.8 million for the three months ended March 31,
      2005. The increase of $1.9 million, or 104%, is primarily due to $935,000 of
      stock-based compensation expense and higher professional fees.





*Interest
      and Other Income*





Interest
      and other income is primarily comprised of interest income earned on our cash
      and short-term investments. Interest and other income was $2.2 million for
      the
      three months ended March 31, 2006, compared to $1.4 million for the three months
      ended March 31, 2005. The increase is due to an increase in rates on our
      interest bearing accounts.





*Interest
      Expense*





Interest
      expense was $2.1 million for the three months ended March 31, 2006 and 2005.




11


*Other
      Expense*




Other expense was $3.5 million for the three months ended March 31, 2006. The
      increase in other expense is due to $3.5 million non-cash expense related to
      the
      exchange of $14.0 million of AtheroGenics’ 4.5% convertible notes for common
      stock.




**Liquidity
      and Capital Resources**




Since
      inception, we have financed our operations primarily through sales of equity
      securities and convertible notes. At March 31, 2006, we had cash, cash
      equivalents and short-term investments of $209.5 million, compared with $182.5
      million at December 31, 2005. Working capital at March 31, 2006 was $181.9
      million, compared to $173.2 million at December 31, 2005. The increase in cash,
      cash equivalents and short-term investments and working capital for the three
      months ended March 31, 2006 is due to the $50.0 million license fee received
      from AstraZeneca in connection with our license and collaboration
      agreement.




Net
      cash
      provided by operating activities was $26.3 million for the three months ended
      March 31, 2006 compared to net cash used in operating activities of $19.2
      million for the three months ended March 31, 2005. The increase in net cash
      provided by operating activities for the three months ended March 31, 2006
      is
      principally due to the $50.0 million license fee received from AstraZeneca,
      partially offset by cash used to fund our operating activities. These activities
      include the expenditures for our ARISE Phase III clinical trial and our other
      ongoing product development programs. For 2006, expenditures for the ARISE
      clinical trial are estimated to be approximately $33.0 million. We anticipate
      net cash usage in 2006 for ARISE and our other ongoing preclinical and clinical
      programs, as well as our other operating activities, to be in a range of $35.0
      million to $40.0 million, which is net of the $50.0 million license fee received
      from AstraZeneca in February 2006.





Net
      cash
      used in investing activities was $28.4 million for the three months ended March
      31, 2006 compared to $77.6 million for the three months ended March 31, 2005.
      Net cash used in investing activities for the three months ended March 31,
      2006
      and for the three months ended March 31, 2005 consisted primarily of net
      purchases of available-for-sale securities.





Net
      cash
      provided by financing activities was $1.2 million for the three months ended
      March 31, 2006 compared to $194.3 million for the three months ended March
      31,
      2005. Net cash provided by financing activities for the three months ended
      March
      31, 2006 consisted primarily of the proceeds received upon exercise of common
      stock options. Net cash provided by financing activities for the three months
      ended March 31, 2005 consisted primarily of $193.6 million received from the
      issuance of 1.5% convertible notes in January 2005.





In
      August
      2003, we issued $100 million in aggregate principal amount of 4.5% convertible
      notes due 2008 through a Rule 144A private placement to qualified institutional
      buyers. These notes initially are convertible into our common stock at a
      conversion rate of 65.1890 shares per $1,000 principal amount of notes, or
      approximately $15.34 per share. Net proceeds were approximately $96.7 million.
      Interest on the 4.5% convertible notes is payable semi-annually in arrears
      on
      March 1 and September 1. In January 2006, we exchanged $14.0 million in
      aggregate principal amount of the 4.5% convertible notes for 1,085,000 shares
      of
      our common stock. From time to time, we may enter into additional exchange
      offers and/or purchases of these notes. As of March 31, 2006, we have recorded
      $270,000 of accrued interest expense related to the 4.5% notes, which is due
      September 1, 2006.





In
      January 2005, we issued $200 million in aggregate principal amount of 1.5%
      convertible notes due 2012 through a Rule 144A private placement to qualified
      institutional buyers. These notes are convertible into shares of our common
      stock at a conversion rate of 38.5802 shares per $1,000 principal amount of
      notes, or approximately $25.92 per share. Interest on the 1.5% convertible
      notes
      is payable semi-annually in arrears on February 1 and August 1. Net proceeds
      were approximately $193.6 million. We are using the net proceeds from the sale
      of the 1.5% notes to fund the ongoing costs of the ARISE Phase III clinical
      trial for AGI-1067 and other research and development activities, including
      clinical trials, and for general corporate purposes, including working capital.
      Pending these uses, the net proceeds have been invested in interest-bearing,
      investment grade securities. As of


12




In
      March
      2005, we committed to purchase approximately $3.5 million of commercial
      manufacturing equipment for AGI-1067, to be delivered in 2006. As of March
      31,
      2006, we have recorded $2.0 million related to the purchase of this equipment.
      The cost of this equipment will be shared by both AtheroGenics and AstraZeneca
      as part of the joint license and collaboration agreements that were signed
      in
      December 2005. We expect our portion of future construction and installation
      costs of the commercial manufacturing equipment to be approximately $7.0
      million.





The
      following table summarizes our long-term contractual obligations as of March
      31,
      2006:





**Payments
                Due by Period****Total**
            
            **Remainder
                of 2006**
            
            **2007-2008**
            
            **2009-2010**
            
            **Thereafter**Contractual
                obligations:Operating
                leases
            
            $
            3,848,374
            
            $
            1,038,503
            
            $
            2,602,834
            
            $
            207,037
            
            $
            —Long-term
                debt
            
            
            286,079,284
            
            
            25,489
            
            
            86,053,795
            
            
            —
            
            
            200,000,000Interest
                on long-term debt
            
            
            27,679,496
            
            
            3,437,438
            
            
            13,742,058
            
            
            6,000,000
            
            
            4,500,000Total
                contractual obligations
            
            $
            317,607,154
            
            $
            4,501,430
            
            $
            102,398,687
            
            $
            6,207,037
            
            $
            204,500,000





Based
      upon the current status of our product development and commercialization plans,
      we believe that our existing cash, cash equivalents and short-term investments
      will be adequate to satisfy our capital needs for at least the next 12 months.
      However, our actual capital requirements will depend on many factors, including
      the following:





·
            the
                scope and results of our research, preclinical and clinical development
                activities;





·
            the
                timing of, and the costs involved in, obtaining regulatory approvals;





·
            the
                timing, receipt and amount of sales and royalties, if any, from our
                potential product candidates;





·
            the
                timing, receipt and amount of milestone and other payments, if any;





·
            our
                ability to maintain our collaborations with AstraZeneca and Astellas
                and
                the financial terms of our collaborations;





·
            the
                costs involved in preparing, filing, prosecuting, maintaining and
                enforcing patent claims and other patent-related
                costs;





·
            the
                costs related to purported class action lawsuits filed against us;
                and





·
            the
                extent to which we acquire or invest in businesses, products and
                technologies.





We
      have
      historically accessed the capital markets from time to time to raise adequate
      funds for operating needs and cash reserves. Although we believe we have
      adequate cash for at least the next 12 months, we may access capital markets
      when we believe market conditions or company needs merit doing so.





**FORWARD-LOOKING
      STATEMENTS**





The
      Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides
      a
      safe harbor for forward-looking statements made by or on behalf of AtheroGenics.
      AtheroGenics and its representatives may from time to time make written or
      oral
      forward-looking statements, including statements contained in this report and
      our other filings with the Securities and Exchange Commission and in our reports
      to our shareholders. Generally, the words "believe," "expect," "intend,"
      "estimate," "anticipate," "will" and similar expressions identify
      forward-looking statements. All statements which address operating performance,
      events or developments that we expect or


13


anticipate
      will occur in the future, such as projections about our future results of
      operations or our financial condition, research, development and
      commercialization of our product candidates and anticipated trends in our
      business, are forward-looking statements within the meaning of the Reform Act.
      The forward-looking statements are and will be based on management's then
      current views and assumptions regarding future events and operating performance,
      and speak only as of their dates. AtheroGenics undertakes no obligation to
      publicly update or revise any forward-looking statements, whether as a result
      of
      new information, future events or otherwise.





The
      following are some of the factors that could affect our financial performance
      or
      could cause actual results to differ materially from those expressed or implied
      in our forward-looking statements:





·
            AGI-1067
                and AGI-1096 may fail in clinical trials;·
            our
                ability to generate positive cash flow in light of our history of
                operating losses;·
            our
                inability to obtain additional financing on satisfactory terms, which
                could preclude us fromdeveloping
                or marketing our products;·
            our
                ability to successfully develop our other product candidates;·
            our
                ability to commercialize our product candidates if we fail to demonstrate
                adequately their safetyand
                efficacy;·
            our
                substantial dependence on our AstraZeneca collaboration, which may
                ultimately be unsuccessful;·
            possible
                delays in our clinical trials;·
            our
                inability to predict whether or when we will obtain regulatory approval
                to
                commercialize ourproduct
                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 ofour
                products to avoid incurring penalties that may inhibit our ability
                to
                commercialize our products;·
            our
                ability to protect adequately or enforce our intellectual property
                rights
                or secure rights to thirdparty
                patents;·
            the
                ability of our competitors to develop and market anti-inflammatory
                products that are moreeffective,
                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 ourclinical
                trials or hinder our commercialization prospects;·
            our
                ability to create sales, marketing and distribution capabilities
                or enter
                into agreements with thirdparties
                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 maybe
                unable to obtain future product liability insurance at reasonable
                prices,
                if at all, either of whichcould
                diminish our ability to commercialize our future products;
                and·
            the
                conversion of our $86 million principal amount, 4.5% convertible
                notes and
                our $200 millionprincipal
                amount, 1.5% convertible notes will dilute the ownership interest
                of
                existing shareholdersand
                could adversely affect the market price of our common
                stock.





14


The
      foregoing list of important factors is discussed in more detail in our Form
      10-K
      and is not an exhaustive list.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Market
      risk represents the risk of loss that may impact our financial position,
      operating results or cash flows due to changes in U.S. interest rates. This
      exposure is directly related to our normal operating activities. Our cash,
      cash
      equivalents and short-term investments are invested with high quality issuers
      and are generally of a short-term nature. Interest rates payable on our
      convertible notes are fixed. As a result, we do not believe that near-term
      changes in interest rates will have a material effect on our future results
      of
      operations.





**Item
      4. Controls and Procedures**





*Evaluation
      of disclosure controls and procedures.* Our
      chief executive officer and chief financial officer are responsible for
      establishing and maintaining "disclosure controls and procedures" (as defined
      in
      the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) for
      AtheroGenics. Our chief executive officer and chief financial officer, after
      evaluating the effectiveness of our disclosure controls and procedures as of
      the
      end of the period covered by this quarterly report, have concluded that our
      disclosure controls and procedures are effective.





*Changes
      in internal control over financial reporting.* There
      were no changes in our internal control over financial reporting that occurred
      during our most recent fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





See *Note
      7.*  *Commitments
      and Contingencies* in the
      Notes to Condensed Financial Statements for a description of the pending legal
      proceedings, which description is incorporated herein by reference.





**Item
      6. Exhibits**





Exhibits





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.




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**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.








**ATHEROGENICS,
                INC.**Date:
                May 8, 2006
            /s/MARK
                P. COLONNESEMark
                P. ColonneseSenior
                Vice President of Finance andAdministration
                and Chief Financial Officer





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