##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-31261
 AtheroGenics, Inc.
  Georgia
    
    58-2108232(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)8995 Westside Parkway, 
Alpharetta, Georgia 30004
    
    (678) 336-2500(Address of principal executive offices, including zip code)
    
    (Registrants telephone number, including area code)
  None
  Common Stock, No Par Value
Common Stock Purchase Rights
 
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   Documents Incorporated by Reference:
 Portions of the proxy statement filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 with respect to the 2007 Annual Meeting of Shareholders are incorporated herein by
reference in Part II, Item 5 and Part III.




---



##### 



ATHEROGENICS, INC
FORM 10-K
 INDEX
 PagePART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved SEC Staff Comments
    
    
    28Item 2.
    
    Properties
    
    
    28Item 3.
    
    Legal Proceedings
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28PART IIItem 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
    
    
    29Item 6.
    
    Selected Financial Data
    
    
    30Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 8.
    
    Financial Statements and Supplementary Data
    
    
    38Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    56Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    56PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    56Item 11.
    
    Executive Compensation
    
    
    56Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
    
    
    57Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    57Item 14.
    
    Principal Accountant Fees and Services
    
    
    57PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    57Signatures
    
    
    
    
    62EX-23.01 CONSENT OF ERNST & YOUNG LLPEX-24.01 POWERS OF ATTORNEYEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO
  i




---



##### Table of Contents



PART I
 
 Item 1. Business
 Overview
 ® ®
 ®
      1




---



##### Table of Contents



F O C U S
 ® ®
 ® ®
 Business Strategy
  
    
    Continue aggressive development program for AGI-1067.We intend to rapidly develop
AGI-1067 for the treatment and prevention of atherosclerosis in patients with CHD.
    
    Extend our v-protectant®technology platform into additional therapeutic areas
that address unmet medical needs.We believe that our v-protectants® have the
potential for treating a wide variety of other chronic inflammatory diseases. These
indications include chronic organ transplant rejection, rheumatoid arthritis, asthma and
other diseases. We have completed two Phase I clinical trials with positive results for
AGI-1096 and we hope to develop this v-protectant® for the prevention of chronic
organ transplant rejection.
    
    Expand our clinical product candidate portfolio.In addition to our existing discovery
programs, we intend to acquire rights to other product candidates and technologies that
complement our existing product candidate lines or that enable us to capitalize on our
scientific and clinical development expertise. We plan to expand our product candidate
portfolio by in-licensing or acquiring product candidates, technologies or companies.
    
    Commercialize our products.We plan to collaborate with large pharmaceutical companies
to commercialize products that we develop to target patient or physician populations in
broad markets. For example, we have entered into a license and collaboration agreement with
AstraZeneca to commercialize AGI-1067 due to its applicability to broad commercial markets.
Additionally, we plan to develop a sales force to commercialize those of our other products
that we develop to target appropriate patient or physician populations in narrow markets.
For example, we plan to establish a 125-person sales force to co-promote AGI-1067 to a
narrow segment of specialist physicians.
 Inflammation and Disease
  2




---



##### Table of Contents




    
    atherosclerosis, including CHD;
    
    organ transplant rejection;
    
    rheumatoid arthritis; and
    
    asthma.
     3




---



##### Table of Contents



® ®
   V-Protectant® Technology
 ® ® ® ® ®
 4




---



##### Table of Contents



Products
  Therapeutic Program
    
    
    Disease/Indication
    
    
    Development StatusV-PROTECTANTS®AGI-1067
    
    
    Atherosclerosis
    
    
    Phase III clinical trialAGI-1096
    
    
    Transplant rejection
    
    
    Phase I clinical trialAGI Series
    
    
    Chronic asthma
    
    
    ResearchRheumatoid arthritisMEKK TECHNOLOGY PLATFORM
    
    
    Inflammatory diseases
    
    
    Research  AGI-1067
 ®
    5




---



##### Table of Contents



AGI-1096
   ® ®
 Other V-Protectant  ® Candidates
 ®
 6




---



##### Table of Contents



®
 ® ® ®
 Collaborations
 AstraZeneca Agreement
  
    
    Development.We have an obligation to use commercially diligent efforts to
carry out the development of AGI-1067. We are also responsible for the costs of
conducting and managing clinical studies through the filing of a NDA.
    
    Regulatory Approvals. We are responsible for applying for and obtaining
regulatory approval of AGI-1067 in the United States; however, AstraZeneca will
assist us with obtaining that approval. AstraZeneca will have full responsibility
for all non-U.S. regulatory filings.
    
    Manufacturing. AstraZeneca is responsible for all activities related to AGI-1067
manufacturing, packaging and labeling. We will use commercially diligent efforts
to facilitate any necessary transfer of technology to AstraZeneca or a third party
chosen by AstraZeneca for AGI-1067 manufacturing, packaging and labeling.
    
    Marketing.AstraZeneca will be responsible for the distribution of AGI-1067 in
all markets throughout the world. In addition, AstraZeneca will bear all costs for
the marketing of AGI-1067 in all markets throughout the world, including
pre-approval and market development activities. AstraZeneca will be solely
responsible for setting pricing for AGI-1067, provided that the initial pricing
will be approved by a committee consisting of our representatives and
representatives from AstraZeneca.
    
    Co-Promotion.We will have the right to co-promote AGI-1067 in the United
States. AstraZeneca will fund, for a minimum of three years, the formation and
operation of a sales force of up to a total of 125 people. This sales force will
focus on the cardiology field in the United States, and will co-promote both
AGI-1067 and one other of AstraZenecas drugs (which drug will be selected by
AstraZeneca) during that time.
    
    License Fee.On February 1, 2006 upon receiving Hart-Scott Rodino regulatory
approval, AstraZeneca paid us the nonrefundable, noncreditable payment of $50
million in partial consideration for the licenses and other rights granted in the
license agreement.
 7




---



##### Table of Contents




    
    Milestone Payments.We have the right to receive payments based on our
achievement of certain development and commercial milestones, which amounts have an
aggregate value of up to $950 million.
    
    Profit Sharing and Royalties. We also have the right to receive royalties from
AstraZeneca, based on AGI-1067 sales in all markets.
    
    Term and Termination. The license agreement will be in effect until either (1)
the regulatory period of patent exclusivity elapses or is revoked; (2) ten years
from the first commercial sale of AGI-1067; or (3) either party materially breaches
the license agreement. In addition, AstraZeneca will have the right to terminate
the license agreement: (1) upon 90 days prior written notice at any time during the
45 day period following the release of the final ARISE results; (2) at any time in
the 30 day period following receipt of a letter from the FDA stating either that:
(a) the FDA will not approve the application, or (b) that it will only approve the
application if specific conditions are met, and such conditions make it reasonably
likely that (i) approval of AGI-1067 will occur more than 24 months following the
receipt of the FDA letter, or (ii) development costs will exceed a specified amount
(unless we agree to pay any amount in excess of a specified amount); (3) if the FDA
requires information or data from additional studies not contemplated in the
original license agreement, when the added cost to AstraZeneca of complying with
the FDA requirements is reasonably likely to exceed a specified amount (unless we
agree to pay any amounts in excess of a specified amount); and (4) for any reason
at any time during the one-year period following the third anniversary of receipt
of FDA approval, upon giving us 365 days written notice at any time during that
one-year period.
  Astellas Pharma Inc. (Formerly Known As Fujisawa Pharmaceutical Co., Ltd ) Agreement
  Discovery Research Program
   
    
    To discover and develop v-protectants®with enhanced potency and improved
therapeutic properties.We are synthesizing novel compounds and testing them in a
variety of biochemical, cell-based and pharmacological assays to discover and develop
new, small molecule v-protectants®. We believe that these
v-protectants® may have improved therapeutic properties and applicability
across a wide range of chronic inflammatory diseases. We have identified several novel
series of highly potent and pharmacologically-active v-protectants® for
investigation.
    
    To discover and develop new classes of anti-inflammatory drug candidates based upon
our MEKK inhibitor drug discovery platform.As a result of entering into a license
agreement with National Jewish Medical and Research Center in 2001, we have expanded our
research program to identify novel pharmacological inhibitors of this important family of
enzymes that participate in chronic inflammation.
    
    To identify and develop new drug candidates based on promising therapeutic targets
identified by our drug discovery programs.Using knowledge gained from our
v-protectant®program and ongoing research activities, we are identifying
enzymes and other molecular targets that either control or are controlled by oxidant
signals. We believe these discoveries will enable our chemists to synthesize the next
generation of therapeutic agents that target chronic inflammation. We intend to use
these enzymes and other molecular targets for both internal efforts and as strategic
collaboration assets.
 8




---



##### Table of Contents



Patents and Intellectual Property
  V-Protectant ® Technology
 ®
    ®
 AGI-1067 Patent Portfolio
  9




---



##### Table of Contents



AGI-1096 Patent Portfolio
  Other V-Protectant ® Compounds
 ® ®
 MEKK Technology
      10




---



##### Table of Contents



Trademarks
  Manufacturing
   ®
 Sales and Marketing
  Competition
   11




---



##### Table of Contents




    
    First, our scientists and their collaborators have pioneered the basic
discoveries and research methodologies linking oxidant signals to vascular cell
inflammation. These discoveries and research methodologies form the foundation for our
proprietary drug discovery programs relating to chronic inflammation.
    
    Second, our scientific expertise, coupled with our expertise in clinical drug
development, has enabled us to be the first company to conduct clinical trials of an
orally-administered, small molecule v-protectant®.
    
    Third, we believe our scientific, development and licensing expertise strongly
positions us to acquire promising technologies and products discovered outside
AtheroGenics.
 Governmental Regulation
    
    
    Phase I clinical trials explore safety, blood levels, metabolism and the
potential for interaction with other drugs. Phase I typically proceeds from healthy
volunteers to patients with the target disease. The study population during Phase I can
include up to approximately 200 total subjects.
    
    Phase II clinical trials further support safety, and they establish the dose(s)
or strength(s) of the drug to be used in the more extensive clinical investigations to
be conducted during Phase III. These Phase II clinical trials may include hundreds of
patients who have the target disease and who are receiving a range of background
medications. In addition, Phase II clinical trials often verify the mechanisms of
action proposed preclinically.
    
    Phase III clinical trials usually include at least two adequate and well
controlled studies in the target population. For most chronic diseases, drug companies
study a few thousand patients to assure a broadly applicable assessment of safety and
efficacy.At the successful conclusion of Phase III, drug companies may submit a product license
application, called an NDA in the United States. The FDA, or non-U.S. regulatory
authorities, review the application for completeness, accuracy and adherence to
regulations. These authorities may use consultants to assist in the evaluation of the
data, and may convene an expert committee to advise on the safety, effectiveness and
usefulness of the proposed new product candidate prior to final regulatory judgment.
The final step to registration is development and approval of the prescribing
information that is incorporated in labeling, usually referred to as the package insert,
that accompanies the marketed drug. This labeling establishes conditions for the safe
and effective use of the drug and the content of drug company promotion and advertising
to physicians who may use the new drug. Approval of the NDA may be conditioned on the
conduct of post-approval studies, or Phase IV studies.
    
    Phase IV clinical trials provide additional information to support marketing of
the drug for its approved indication. Phase IV clinical trials may generate data to
support promotion of the new drug in comparison with other approved drugs and to support
healthcare economics claims. In addition, every pharmaceutical company is responsible
for post-marketing surveillance for safety in the marketplace.
 12




---



##### Table of Contents



13




---



##### Table of Contents




    
    Good Manufacturing Practices (GMP), which govern the formulation, manufacture,
testing, labeling, packaging, release and monitoring of a drug throughout its life
cycle;
    
    Good Laboratory Practices, which govern the use of a drug in animal studies to
support establishment of safety or the disposition and metabolism of the administered
drug, and handling of human or other biological samples for drug assays; and
    
    Good Clinical Practices, which govern the exposure of human subjects under our
investigational protocols. Good Clinical Practices set standards for the constitution
and activities of institutional review boards and clinical investigators that are
charged with assuring that the appropriate person gives informed consent prior to study
participation, protecting patients whether they receive an experimental drug, an
approved drug or a placebo, controlling and accounting for investigational drug
products, and producing timely and accurate study records.
     Research and Development
 ®
 14




---



##### Table of Contents



Employees
  Available Information
 www.atherogenics.com
 Scientific Advisory Board
  R. Wayne Alexander, M.D., Ph.D., Chairman
    
    Chairman, Department of Medicine, Emory University
School of MedicineErwin W. Gelfand, M.D.
    
    Chairman, Department of Pediatrics, National
Jewish Medical and Research CenterGary L. Johnson, Ph.D.
    
    Professor and Chairman, Department of
Pharmacology, University of North Carolina
School of MedicinePeter Libby, M.D.
    
    Chief, Cardiovascular Division Department of
Medicine, Brigham and Womens Hospital
 15




---



##### Table of Contents



Item 1A Risk Factors
 Forward-Looking Statements and Risks Related to Our Company and Business
 The Private Securities Litigation Reform Act of 1995 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 anticipate will occur in the future, including projections of our future results of
operations or of our financial condition, research, development and commercialization of our
product candidates, expected timing regarding the completion of our clinical trials and the related
release of results 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 our then
current views and assumptions regarding future events and operating performance, and speak only as
of their dates. We undertake 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:
 Risks Related to Our Financial Results and Need for Additional Financing
 We have a history of operating losses, and we may not generate revenue or achieve profitability
in the future.
  If we need additional financing and cannot obtain it, we may not be able to develop or market
our products.
  
    
    the scope and results of our research, preclinical and clinical development activities;
    
    the timing of, and the costs involved in, obtaining regulatory approvals;
    
    our ability to establish and maintain collaborations, the financial terms of any collaborations and our ability to achieve
pre-determined milestones in connection with such collaborations;
    
    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;
    
    the extent to which we acquire or invest in businesses, products and technologies.
  16




---



##### Table of Contents



Risks Related to Development and Commercialization of Product Candidates and Dependence on Third
Parties
 We depend heavily on the success of our most advanced internal product candidate, AGI-1067 for
atherosclerosis, which is in clinical development. If we are unable to commercialize this
product candidate, or experience significant delays in doing so, our business will be materially
harmed.
  
    
    successful completion of clinical trials;
    
    receipt of marketing approvals from the FDA and similar foreign regulatory authorities;
    
    successfully preparing for, and sustaining, commercial manufacturing and distribution arrangements with third party
manufacturers, including our collaborator, AstraZeneca;
    
    commencing commercial sales of the product, in collaboration with AstraZeneca; and
    
    acceptance of the product in the medical community and with third party payors.
  We are substantially dependent on our collaboration with AstraZeneca for the development and
commercialization of AGI-1067.
    17




---



##### Table of Contents



If we do not successfully develop our other product candidates, we will have limited ability to
generate revenue.
  If we fail to demonstrate adequately the safety and efficacy of a product candidate, we will not
be able to commercialize that product candidate.
     We may not be successful in establishing collaborations for product candidates we may seek to
commercialize, which could adversely affect our ability to discover, develop and commercialize
products.
  18




---



##### Table of Contents



In addition to our collaboration with AstraZeneca, we expect to depend significantly on
collaborations with third parties to develop and commercialize some of our product candidates.
If a potential collaborator were to change its strategy or the focus of its development and
commercialization efforts with respect to our relationship, the success of our product
candidates and our operations could be adversely affected.
  
    
    a collaborator may develop and commercialize, either alone or with others, products and services that are similar to or
competitive with the products that are the subject of the collaboration with us;
    
    a collaborator may change the focus of its development and commercialization efforts. Pharmaceutical and biotechnology
companies historically have re-evaluated their priorities from time to time, including following mergers and
consolidations, which have been common in recent years in these industries;
    
    the ability of our product candidates and products to reach their potential could be limited if our collaborators decrease
or fail to increase spending relating to these products;
    
    a collaborator may terminate a collaboration;
    
    a collaborator may fail to achieve or remain in regulatory compliance; and
    
    a collaborator may fail to maintain or defend our intellectual property rights.
  Third parties failure to synthesize and manufacture our product candidates to our
specifications could delay our clinical trials or hinder our commercialization prospects.
  
    
    A finding that a third party did not comply with applicable
governmental regulations.Manufacturers of pharmaceutical products
are subject to continual review and periodic inspections by regulatory
agencies. Our present or future manufacturers may not be able to
comply with the FDAs current Good Manufacturing Practices regulations
and other FDA regulatory requirements or similar regulatory
requirements outside the United States. Failure of one of our third
party manufacturers to comply with applicable regulatory requirements,
whether or not related to our product candidates, could result in
sanctions being imposed on us, including fines, injunctions, civil
penalties, failure of regulatory authorities to grant marketing
approval of
 19




---



##### Table of Contents



our product candidates, delays, suspension or withdrawal
of approvals, license revocation, seizures or recalls of product
candidates or products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect
supplies of our product candidates and products.
    
    A failure to synthesize and manufacture our product candidates in
accordance with our product specifications.We need to maintain a
very low maximal amount of one of the starting materials used in the
manufacture of AGI-1067. The starting material, probucol, was
prescribed by physicians as a cholesterol-lowering agent until its
manufacturer withdrew the drug from the market for efficacy reasons.
AstraZeneca is responsible for supplying all of the manufacturing,
packaging and labeling under our joint licensing and collaboration
agreement. A failure by AstraZeneca or other third party
manufacturers to maintain an acceptable level of probucol in the
manufacture of AGI-1067 may result in chronic dosing of probucol,
which is associated with the occurrence of a rare side effect.
    
    A failure to deliver product candidates in sufficient quantities or in
a timely manner.Any failure by our third party manufacturers to
supply our requirements for clinical trial materials or commercial
product, or to supply these materials in a timely manner, could
jeopardize the initiation or completion of clinical trials or could
have a material adverse effect on our ability to commercialize any
approved products and thereby generate revenue.
    
    Termination or nonrenewal of an agreement by a third party, including
our collaborator AstraZeneca, based on its own business priorities, at
a time that is costly or inconvenient to us.Our product candidates
and any products that we successfully develop may compete with product
candidates and products of others for access to the third partys
manufacturing facilities. In addition, because we do not have any
internal manufacturing capabilities, the termination of a supply or
manufacturing agreement could severely impair our ability to
manufacture our products and could have a material adverse effect on
our financial condition and operating results.
 The commercial success of any products that we may develop will depend on the degree of market
acceptance by physicians, patients, healthcare payors and others in the medical community.
  
    
    the prevalence and severity of any side effects;
    
    the efficacy and potential advantages over alternative treatments;
    
    the ability to offer our product candidates for sale at competitive prices;
    
    relative convenience and ease of administration;
    
    the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
    
    the strength of marketing and distribution support; and
    
    sufficient third party coverage or reimbursement.
 If our competitors develop and market products that are more effective, have fewer side effects
or are less expensive than our current or future product candidates, we may have limited
commercial opportunities.
  20




---



##### Table of Contents



We have not previously sold, marketed or distributed any products and may not be able to
successfully commercialize AGI-1067, or other drug candidates.
  If we are unable to obtain adequate coverage and reimbursement from third party payors for any
products that we may develop or acceptable prices for those products, our revenues and prospects
for profitability will suffer.
    21




---



##### Table of Contents



If plaintiffs bring product liability lawsuits against us, we may incur substantial financial
loss or 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.
  
    
    decreased demand for any product candidates or products that we may develop;
    
    injury to our reputation;
    
    withdrawal of clinical trial participants;
    
    costs to defend the related litigation;
    
    substantial monetary awards to trial participants or patients;
    
    loss of revenue; and
    
    the inability to commercialize any products that we may develop.
  Risks Related to Our Intellectual Property
 Our failure to protect adequately or enforce our intellectual property rights or secure rights
to third party patents could materially adversely affect our proprietary position in the
marketplace or prevent the commercialization of our products.
    22




---



##### Table of Contents



If we infringe or are alleged to infringe intellectual property rights of third parties, it will
adversely affect our business.
    If we fail to comply with our obligations in our intellectual property licenses with third
parties, we could lose license rights that are important to our business.
 ®
 23




---



##### Table of Contents



If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be adversely affected.
  Risks Related to Regulatory Approval of Our Product Candidates
 Because we cannot predict whether or when we will obtain regulatory approval to
commercialize our product candidates, we cannot predict the timing of any future revenue from
these product candidates.
  We may experience delays in our clinical trials that could adversely affect our financial
results and our commercial prospects.
   Failure to obtain regulatory approval in international jurisdictions would prevent us from
marketing our products abroad.
  24




---



##### Table of Contents



If we do not comply with applicable regulatory requirements in the manufacture and distribution
of our products, we may incur penalties that may inhibit our ability to commercialize our
products and adversely affect our revenue.
  Even if the FDA approves our product candidates, the approval will be limited to those
indications and conditions for which we are able to show clinical safety and efficacy.
  Risks Related to Our Operations
 Our failure to attract, retain and motivate skilled personnel and cultivate key academic
collaborations could materially adversely affect our research and development efforts.
  The outcome of informal inquiries by the SEC and NASD regarding our announcement of interim
results from the CART-2 clinical trial for AGI-1067 and related trading in our common stock is
uncertain.
  Our activities involve the use of hazardous materials, which subject us to regulation, related
costs and delays and potential liabilities.
  25




---



##### Table of Contents



Risks Related to our Common Stock and Indebtedness
 Our stock price has been and may continue to be volatile.
  
    
    results of clinical trials of our product candidates, particularly AGI-1067, and those of our competitors;
    
    whether we maintain our collaboration agreement with AstraZeneca;
    
    developments concerning any research and development, manufacturing and marketing collaborations, including whether and
when we achieve milestones;
    
    announcements of technological innovations or new commercial products by our competitors or us;
    
    developments concerning proprietary rights, including patents;
    
    the addition or termination of research programs or funding support;
    
    publicity regarding actual or potential results relating to medicinal products under
development by our competitors or us;
    
    regulatory developments in the United States and other countries;
    
    litigation;
    
    economic and other external factors, including disasters or crises;
    
    period-to-period fluctuations in financial results; and
    
    analysts recommendations.
  Our existing indebtedness and any future indebtedness we incur exposes us to risks that could
adversely affect our business, operating results and financial condition.
  
    
    increasing our vulnerability to adverse economic and industry conditions;
 26




---



##### Table of Contents




    
    limiting our ability to obtain additional financing;
    
    requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby
reducing the amount of our cash flow available for other purposes;
    
    limiting our flexibility in planning for, or reacting to, changes in our business; and
    
    placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better
access to capital resources.
  Conversion of our convertible notes will dilute the ownership interest of existing shareholders
and could adversely affect the market price of our common stock.
  Our shareholder rights plan and anti-takeover provisions in our charter documents may make an
acquisition of us, which may benefit our shareholders, more difficult.
  
    
    allow our shareholders the right to acquire common stock from us at discounted prices in the event a person acquires 15% or
more of our common stock or announces an attempt to do so without our board of directors prior consent;
    
    authorize the issuance of blank check preferred stock by our board of directors without shareholder approval, which would
increase the number of outstanding shares and could thwart a takeover attempt;
    
    limit who may call a special meeting of shareholders;
    
    require shareholder action without a meeting by unanimous written consent;
    
    establish advance notice requirements for nominations for election to the board of directors or for proposing matters that
can be acted upon at shareholder meetings;
    
    establish a staggered board of directors whose members can only be dismissed for cause;
    
    adopt the fair price requirements and rules regarding business combinations with interested shareholders set forth in
Article 11, Parts 2 and 3 of the Georgia Business Corporation Code; and
    
    require approval by the holders of at least 75% of the outstanding common stock to amend any
of the foregoing provisions.
 27




---



##### Table of Contents



Our five largest institutional shareholders collectively own more than 50% of our outstanding
shares, which could permit these shareholders to exercise considerable influence over us.
  
 Item 1B. Unresolved SEC Staff Comments
  
 Item 2. Properties
   
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  28




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
 Common Stock Information
  Common StockHigh
    
    LowYear ended December 31, 2006First quarter
    
    $
    20.67
    
    
    $
    15.00Second quarter
    
    
    16.18
    
    
    
    12.53Third quarter
    
    
    14.17
    
    
    
    12.23Fourth quarter
    
    
    15.21
    
    
    
    9.91Year ended December 31, 2005First quarter
    
    $
    20.61
    
    
    $
    13.00Second quarter
    
    
    16.87
    
    
    
    10.66Third quarter
    
    
    18.25
    
    
    
    15.76Fourth quarter
    
    
    21.14
    
    
    
    14.42
  Dividend Policy
  Securities Authorized for Issuance Under Equity Compensation Plans
  29




---



##### Table of Contents



Item 6. Selected Financial Data
  Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Statement of Operations Data:Revenues:License fees
    
    $
    22,916,667
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Research and development
    
    
    8,758,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    31,674,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses:Research and development
    
    
    82,855,340
    
    
    
    71,278,945
    
    
    
    59,235,833
    
    
    
    46,660,960
    
    
    
    23,746,127General and administrative
    
    
    13,373,112
    
    
    
    9,050,290
    
    
    
    6,607,506
    
    
    
    5,930,675
    
    
    
    5,139,000Total operating expenses
    
    
    96,228,452
    
    
    
    80,329,235
    
    
    
    65,843,339
    
    
    
    52,591,635
    
    
    
    28,885,127Operating loss
    
    
    (64,553,607
    )
    
    
    (80,329,235
    )
    
    
    (65,843,339
    )
    
    
    (52,591,635
    )
    
    
    (28,885,127
    )Interest and other income
    
    
    9,175,817
    
    
    
    6,691,965
    
    
    
    1,447,001
    
    
    
    1,258,216
    
    
    
    962,040Interest expense
    
    
    (8,423,346
    )
    
    
    (8,917,057
    )
    
    
    (5,192,894
    )
    
    
    (1,954,402
    )
    
    
    (42,420
    )Other expense
    
    
    (3,521,236
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (67,322,372
    )
    
    $
    (82,554,327
    )
    
    $
    (69,589,232
    )
    
    $
    (53,287,821
    )
    
    $
    (27,965,507
    )Basic and diluted net loss per share
    
    $
    (1.71
    )
    
    $
    (2.19
    )
    
    $
    (1.88
    )
    
    $
    (1.49
    )
    
    $
    (1.00
    )Shares used in computing basic and
diluted net loss per share
    
    
    39,383,376
    
    
    
    37,774,203
    
    
    
    37,070,235
    
    
    
    35,770,994
    
    
    
    27,978,705
  2006
    
    2005
    
    2004
    
    2003
    
    2002Balance Sheet Data:Cash, cash equivalents and
short-term investments
    
    $
    151,810,939
    
    
    $
    182,504,523
    
    
    $
    66,924,015
    
    
    $
    131,583,928
    
    
    $
    34,671,131Working capital
    
    
    118,786,367
    
    
    
    173,164,668
    
    
    
    59,719,811
    
    
    
    124,848,687
    
    
    
    30,009,013Total assets
    
    
    178,339,664
    
    
    
    197,497,527
    
    
    
    74,462,327
    
    
    
    138,836,746
    
    
    
    37,952,044Long-term debt
    
    
    286,000,000
    
    
    
    300,053,796
    
    
    
    100,000,000
    
    
    
    100,083,622
    
    
    
    572,492Accumulated deficit
    
    
    (361,997,246
    )
    
    
    (294,674,874
    )
    
    
    (212,120,547
    )
    
    
    (142,531,315
    )
    
    
    (89,243,494
    )Total shareholders (deficit) equity
    
    
    (153,987,649
    )
    
    
    (115,436,216
    )
    
    
    (35,942,382
    )
    
    
    30,377,006
    
    
    
    32,493,713
 30




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with our financial statements and
related notes included in this annual report. In this report, AtheroGenics, we, us and our
refer to AtheroGenics, Inc.
 This annual report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject
to certain factors, risks and uncertainties that may cause actual results, events and performances
to differ materially from those referred to in such statements. These risks include statements
which address operating performance, events or developments that we expect or anticipate will occur
in the future, such as projections about our future results of operations or financial condition,
research, development and commercialization of our product candidates, expectations regarding the
completion of our clinical trials and the related release of results, anticipated trends in our
business, and other risks that could cause actual results to differ materially. You should
carefully consider these risks, which are discussed in this annual report, including, without
limitation, in the sections entitled Risk Factors and Managements Discussion and Analysis of
Financial Condition and Results of Operations, and in AtheroGenics SEC filings.
 Overview
 ® ®
 ® A R I S E
  ® ®
 ® ®
 31




---



##### Table of Contents



Year ended December 31,2006
    
    
    2005
    
    
    2004Direct external costs:AGI-1067
    
    $
    53,136,660
    
    
    $
    51,087,586
    
    
    $
    38,005,867AGIX-4207
    
    
    62,770
    
    
    
    124,224
    
    
    
    2,142,083Unallocated costs and other programs
    
    
    29,655,910
    
    
    
    20,067,135
    
    
    
    19,087,883Total research and development
    
    $
    82,855,340
    
    
    $
    71,278,945
    
    
    $
    59,235,833
  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.
  Critical Accounting Policies and Use of Estimates
  Research and Development Accrual
  32




---



##### Table of Contents



Revenue Recognition
    Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees. 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 Years Ended December 31, 2006 and 2005
 Revenues
  Expenses
  33




---



##### Table of Contents



Marketing, General and Administrative.
 Interest and Other Income
  Interest Expense
  Other Expense
  Income Taxes
  Comparison of Years Ended December 31, 2005 and 2004
 Revenues
  Expenses
 Research and Development
 General and Administrative
 34




---



##### Table of Contents



Interest and Other Income
  Interest Expense
  Income Taxes
  Liquidity and Capital Resources
      35




---



##### Table of Contents



Payments Due by PeriodTotal
    
    
    2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    ThereafterContractual obligationsOperating leases
    
    $
    2,830,028
    
    
    $
    1,381,773
    
    
    $
    1,446,500
    
    
    $
    1,755
    
    
    $
    Long-term debt
    
    
    286,000,000
    
    
    
    
    
    
    
    86,000,000
    
    
    
    
    
    
    
    200,000,000Interest on long-term debt
    
    
    21,700,000
    
    
    
    6,870,000
    
    
    
    8,580,000
    
    
    
    6,000,000
    
    
    
    250,000Total contractual obligations
    
    $
    310,5308,028
    
    
    $
    8,251,773
    
    
    $
    96,026,500
    
    
    $
    6,001,755
    
    
    $
    200,250,000
  
    
    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; and
    
    the extent to which we acquire or invest in businesses, products and technologies.
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  36




---



##### Table of Contents



Value as ofDecember 31,2007
    
    2008-2009
    
    2010-2012
    
    Total
    
    2006Long-term debt  fixed rate
Maturity
    
    $
    
    
    
    $
    86,000,000
    
    
    $
    200,000,000
    
    
    $
    286,000,000
    
    
    $
    246,600,000Weighted average interest rate
    
    
    
    
    
    
    4.5
    %
    
    
    1.5
    %
 37




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  
 ATHEROGENICS, INC.
INDEX TO FINANCIAL STATEMENTS
 Contents
 Managements Annual Report on Internal Control Over Financial Reporting
    
    
    39Report of Independent Registered Public Accounting Firm on Internal Control
    
    
    40Report of Independent Registered Public Accounting Firm on Financial Statements
    
    
    41Balance Sheets
    
    
    42Statements of Operations
    
    
    43Statements of Shareholders (Deficit) Equity
    
    
    44Statements of Cash Flows
    
    
    45Notes to Financial Statements
    
    
    46
 38




---



##### Table of Contents



MANAGEMENTS ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of AtheroGenics;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of AtheroGenics are being made
only in accordance with authorizations of management and directors of AtheroGenics; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of AtheroGenics assets that could have a material
effect on the financial statements.
     39




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL
      .
  /s/ Ernst & Young LLP
 
 40




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
     Share-Based Payment
  /s/ Ernst & Young LLP
 
 41




---



##### Table of Contents



ATHEROGENICS, INC.
BALANCE SHEETS
 December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    87,846,079
    
    
    $
    82,831,679Short-term investments
    
    
    63,964,860
    
    
    
    99,672,844Accounts receivable
    
    
    6,537,892
    
    
    
    19,393Prepaid expenses
    
    
    4,038,419
    
    
    
    2,639,900Interest receivable and other current assets
    
    
    643,097
    
    
    
    880,799Total current assets
    
    
    163,030,347
    
    
    
    186,044,615Equipment and leasehold improvements, net of accumulated depreciation
and amortization
    
    
    9,684,965
    
    
    
    4,108,462Debt issuance costs and other assets
    
    
    5,624,352
    
    
    
    7,344,450Total assets
    
    $
    178,339,664
    
    
    $
    197,497,527Liabilities and Shareholders DeficitCurrent liabilities:Accounts payable
    
    $
    3,183,511
    
    
    $
    2,188,461Accrued research and development
    
    
    11,263,164
    
    
    
    3,946,970Accrued interest
    
    
    2,540,000
    
    
    
    2,750,000Accrued compensation
    
    
    1,465,644
    
    
    
    2,649,640Accrued and other liabilities
    
    
    791,661
    
    
    
    1,344,876Current portion of deferred revenue
    
    
    25,000,000
    
    
    
    Total current liabilities
    
    
    44,243,980
    
    
    
    12,879,947Convertible notes payable and equipment loan, net of current portion
    
    
    286,000,000
    
    
    
    300,053,796Long-term portion of deferred revenue
    
    
    2,083,333
    
    
    
    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 
39,452,927 and 38,143,678 shares at December 31, 2006
and 2005, respectively
    
    
    207,388,894
    
    
    
    178,771,376Warrants
    
    
    613,021
    
    
    
    620,223Accumulated deficit
    
    
    (361,997,246
    )
    
    
    (294,674,874
    )Accumulated other comprehensive income (loss)
    
    
    7,682
    
    
    
    (152,941
    )Total shareholders deficit
    
    
    (153,987,649
    )
    
    
    (115,436,216
    )Total liabilities and shareholders deficit
    
    $
    178,339,664
    
    
    $
    197,497,527
 The accompanying notes are an integral part of these financial statements.
 42




---



##### Table of Contents



ATHEROGENICS, INC.
STATEMENTS OF OPERATIONS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenues:License fees
    
    $
    22,916,667
    
    
    $
    
    
    
    $
    Research and development
    
    
    8,758,178
    
    
    
    
    
    
    
    Total revenues
    
    
    31,674,845
    
    
    
    
    
    
    
    Operating expenses:Research and development
    
    
    82,855,340
    
    
    
    71,278,945
    
    
    
    59,235,833General and administrative
    
    
    13,373,112
    
    
    
    9,050,290
    
    
    
    6,607,506Total operating expenses
    
    
    96,228,452
    
    
    
    80,329,235
    
    
    
    65,843,339Operating loss
    
    
    (64,553,607
    )
    
    
    (80,329,235
    )
    
    
    (65,843,339
    )Interest and other income
    
    
    9,175,817
    
    
    
    6,691,965
    
    
    
    1,447,001Interest expense
    
    
    (8,423,346
    )
    
    
    (8,917,057
    )
    
    
    (5,192,894
    )Other expense
    
    
    (3,521,236
    )
    
    
    
    
    
    
    Net loss
    
    $
    (67,322,372
    )
    
    $
    (82,554,327
    )
    
    $
    (69,589,232
    )Net loss per sharebasic and diluted
    
    $
    (1.71
    )
    
    $
    (2.19
    )
    
    $
    (1.88
    )Weighted average shares outstandingbasic and diluted
    
    
    39,383,376
    
    
    
    37,774,203
    
    
    
    37,070,235
 The accompanying notes are an integral part of these financial statements.
 43




---



##### Table of Contents



ATHEROGENICS, INC.
STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY
 AccumulatedDeferred
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Warrants
    
    
    Compensation
    
    
    Deficit
    
    
    (Loss) Income
    
    
    (Deficit) EquityBalance at January 1, 2004
    
    
    36,763,407
    
    
    $
    172,452,536
    
    
    $
    950,588
    
    
    $
    (505,708
    )
    
    $
    (142,531,315
    )
    
    $
    10,905
    
    
    $
    30,377,006Issuance of common stock for exercise of stock options
at $.30 to $16.52 per share
    
    
    495,265
    
    
    
    2,783,894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,783,894Issuance of common stock for exercise of warrants
    
    
    109,986
    
    
    
    289,540
    
    
    
    (289,540
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustments to market value for variable stock options
and warrants issued to non-employees
    
    
    
    
    
    
    145,663
    
    
    
    167,756
    
    
    
    (313,419
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    
    
    
    
    41,632
    
    
    
    
    
    
    
    494,520
    
    
    
    
    
    
    
    
    
    
    
    536,152Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,589,232
    )
    
    
    
    
    
    
    (69,589,232
    )Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,202
    )
    
    
    (50,202
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,639,434
    )Balance at December 31, 2004
    
    
    37,368,658
    
    
    
    175,713,265
    
    
    
    828,804
    
    
    
    (324,607
    )
    
    
    (212,120,547
    )
    
    
    (39,297
    )
    
    
    (35,942,382
    )Issuance of common stock for exercise of stock options
at $.10 to $14.86 per share
    
    
    727,178
    
    
    
    2,989,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,989,844Issuance of common stock for exercise of warrants
    
    
    47,842
    
    
    
    154,768
    
    
    
    (154,768
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustments to market value for variable stock options
and warrants issued to non-employees
    
    
    
    
    
    
    (27,456
    )
    
    
    (53,813
    )
    
    
    81,269
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,293
    
    
    
    
    
    
    
    
    
    
    
    184,293Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,554,327
    )
    
    
    
    
    
    
    (82,554,327
    )Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,644
    )
    
    
    (113,644
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,667,971
    )Balance at December 31, 2005
    
    
    38,143,678
    
    
    
    178,830,421
    
    
    
    620,223
    
    
    
    (59,045
    )
    
    
    (294,674,874
    )
    
    
    (152,941
    )
    
    
    (115,436,216
    )Issuance of common stock for exercise of stock options
at $.30 to $16.52 per share
    
    
    224,249
    
    
    
    1,762,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,762,357Issuance of common stock for debt conversion
    
    
    1,085,000
    
    
    
    17,562,557
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,562,557Adjustments to market value for variable stock options
and warrants issued to non-employees
    
    
    
    
    
    
    (5,433
    )
    
    
    (7,202
    )
    
    
    12,635
    
    
    
    
    
    
    
    
    
    
    
    Amortization of non-employee deferred stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,410
    
    
    
    
    
    
    
    
    
    
    
    46,410Stock-based compensation
    
    
    
    
    
    
    9,238,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,238,992Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,322,372
    )
    
    
    
    
    
    
    (67,322,372
    )Unrealized gain on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,623
    
    
    
    160,623Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,161,749
    )Balance at December 31, 2006
    
    
    39,452,927
    
    
    $
    207,388,894
    
    
    $
    613,021
    
    
    $
    
    
    
    $
    (361,997,246
    )
    
    $
    7,682
    
    
    $
    (153,987,649
    )
 The accompanying notes are an integral part of these financial statements.
 44




---



##### Table of Contents



ATHEROGENICS, INC.
STATEMENTS OF CASH FLOWS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Operating activitiesNet loss
    
    $
    (67,322,372
    )
    
    $
    (82,554,327
    )
    
    $
    (69,589,232
    )Adjustments to reconcile net loss to net cash used
in operating activities:Amortization of license fee
    
    
    (22,916,667
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    9,285,402
    
    
    
    184,293
    
    
    
    536,152Loss on debt conversion
    
    
    3,521,236
    
    
    
    
    
    
    
    Amortization of debt issuance costs
    
    
    1,483,169
    
    
    
    1,504,172
    
    
    
    652,981Depreciation and amortization
    
    
    972,009
    
    
    
    808,599
    
    
    
    883,312Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,518,499
    )Prepaid expenses
    
    
    (1,398,519
    )
    
    
    (5,603
    )
    
    
    (1,490,291
    )Interest receivable and other assets
    
    
    237,702
    
    
    
    (351,787
    )
    
    
    (28,963
    )Accounts payable
    
    
    995,050
    
    
    
    (649,592
    )
    
    
    1,059,866Accrued research and development
    
    
    6,262,136
    
    
    
    (136,924
    )
    
    
    1,122,809Accrued interest
    
    
    68,250
    
    
    
    1,250,000
    
    
    
    (162,500
    )Accrued compensation
    
    
    (1,183,996
    )
    
    
    1,410,393
    
    
    
    200,340Accrued and other liabilities
    
    
    (519,431
    )
    
    
    755,076
    
    
    
    203,893Deferred revenue
    
    
    50,000,000
    
    
    
    
    
    
    
    Net cash used in operating activities
    
    
    (27,034,530
    )
    
    
    (77,785,700
    )
    
    
    (66,611,633
    )Investing activitiesPurchases of short-term investments
    
    
    (102,945,761
    )
    
    
    (200,633,447
    )
    
    
    (76,544,056
    )Sales and maturities of short-term investments
    
    
    138,814,368
    
    
    
    151,882,055
    
    
    
    103,984,437Purchases of equipment and leasehold improvements
    
    
    (5,494,454
    )
    
    
    (2,977,050
    )
    
    
    (302,533
    )Net cash provided by (used in) investing activities
    
    
    30,374,153
    
    
    
    (51,728,442
    )
    
    
    27,137,848Financing activitiesProceeds from the sale of convertible notes
    
    
    
    
    
    
    193,566,977
    
    
    
    Proceeds from the exercise of common stock options
    
    
    1,762,357
    
    
    
    2,989,844
    
    
    
    2,783,894Payments on equipment loan
    
    
    (87,580
    )
    
    
    (99,919
    )
    
    
    (479,439
    )Net cash provided by financing activities
    
    
    1,674,777
    
    
    
    196,456,902
    
    
    
    2,304,455Increase (decrease) in cash and cash equivalents
    
    
    5,014,400
    
    
    
    66,942,760
    
    
    
    (37,169,330
    )Cash and cash equivalents at beginning of year
    
    
    82,831,679
    
    
    
    15,888,919
    
    
    
    53,058,249Cash and cash equivalents at end of year
    
    $
    87,846,079
    
    
    $
    82,831,679
    
    
    $
    15,888,919Supplemental disclosures of cash flow informationInterest paid
    
    $
    6,871,927
    
    
    $
    6,162,886
    
    
    $
    4,676,472
 The accompanying notes are an integral part of these financial statements.
 45




---



##### Table of Contents



NOTES TO FINANCIAL STATEMENTS
 1. Description of Business and Significant Accounting Policies
 Description of Business
  Use of Estimates
  Cash and Cash Equivalents
  Short-Term Investments
  Accounting for Certain Investments in Debt and Equity Securities
 Fair Value of Financial Instruments and Concentration of Credit Risk
  Accounts Receivable
 F O C U S
 Equipment and Leasehold Improvements
  46




---



##### Table of Contents



Research and Development Accrual
  Revenue Recognition
 Revenue Recognition in Financial Statements, Revenue Recognition,
  Reporting Gross Revenue as a Principal vs. Net as an Agent.
 Research and Development and Patent Costs
  Stock-Based Compensation
 Share-Based Payment, Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees
   47




---



##### Table of Contents



Accounting for Stock-Based Compensation  Transition and
Disclosure,
  2005
    
    
    2004Net loss, as reported
    
    $
    (82,554,327
    )
    
    $
    (69,589,232
    )Add: Stock-based employee compensation expense included
in reported net loss
    
    
    
    
    
    
    57,511Deduct: Total stock-based employee compensation expense
determined under fair value based method for
all awards
    
    
    (8,764,619
    )
    
    
    (6,125,770
    )Pro forma net loss
    
    $
    (91,318,946
    )
    
    $
    (75,657,491
    )Net loss per share:Basic and diluted, as reported
    
    $
    (2.19
    )
    
    $
    (1.88
    )Basic and diluted, pro forma
    
    $
    (2.42
    )
    
    $
    (2.04
    )
  2005
    
    2004Expected life
    
    5 years
    
    5 yearsRisk-free interest rate
    
    
    4.21
    %
    
    
    4.25
    %Volatility
    
    
    77.75
    %
    
    
    78.67
    %Fair value of grants
    
    $
    8.80
    
    
    $
    15.27
 Income Taxes
  Comprehensive Income (Loss)
 Reporting
Comprehensive Income
 48




---



##### Table of Contents



Recently Issued Accounting Standards
 Accounting for Uncertainty in Income
Taxes, an interpretation of FASB statement No. 109
 2. Collaborations
 A R I S E
 F O C U S
  3. Short-Term Investments
  December 31,2006
    
    
    2005Government agency notes
    
    $
    28,739,955
    
    
    $
    37,216,713Commercial paper
    
    
    22,715,730
    
    
    
    14,708,628Corporate notes
    
    
    12,509,175
    
    
    
    46,246,424Certificate of deposit
    
    
    
    
    
    
    1,501,079Total
    
    $
    63,964,860
    
    
    $
    99,672,844
  49




---



##### Table of Contents



4. Equipment and Leasehold Improvements
  December 31,2006
    
    
    2005Construction-in-progress
    
    $
    5,429,178
    
    
    $
    1,877,596Laboratory equipment
    
    
    3,382,243
    
    
    
    2,564,319Leasehold improvements
    
    
    3,244,412
    
    
    
    1,959,129Computer and office equipment
    
    
    2,349,797
    
    
    
    1,757,90514,405,630
    
    
    
    8,158,949Accumulated depreciation and amortization
    
    
    (4,720,665
    )
    
    
    (4,050,487
    )Net equipment and leasehold improvements
    
    $
    9,684,965
    
    
    $
    4,108,462
  5. Convertible Notes Payable
 Induced Conversion of Convertible Debt
    50




---



##### Table of Contents



2008
    
    $
    86,000,0002012
    
    
    200,000,000$
    286,000,000
 6. Net Loss Per Share
 Earnings per Share,
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Shares underlying convertible notes
    
    
    13,322,307
    
    
    
    14,234,953
    
    
    
    6,518,904Options
    
    
    6,521,524
    
    
    
    4,375,632
    
    
    
    4,955,801Warrants
    
    
    82,436
    
    
    
    82,436
    
    
    
    142,310Total
    
    
    19,926,267
    
    
    
    18,693,021
    
    
    
    11,617,015Weighted average conversion price of shares underlying
convertible notes
    
    $
    21.47
    
    
    $
    22.39
    
    
    $
    15.34Weighted average exercise price of options
    
    $
    11.73
    
    
    $
    11.17
    
    
    $
    10..20Weighted average exercise price of warrants
    
    $
    5.64
    
    
    $
    5.64
    
    
    $
    4.78
  7. Common Stock
    51




---



##### Table of Contents



8. Stock Options and Warrants
     WeightedAverageWeighted
    
    Remaining
    
    AggregateNumber of
    
    Average
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Life
    
    ValueOutstanding at January 1, 2004
    
    
    4,403,179
    
    
    $
    6.27Granted
    
    
    1,166,125
    
    
    
    23.16Exercised
    
    
    (496,908
    )
    
    
    5.72Canceled
    
    
    (116,595
    )
    
    
    10.23Outstanding at December 31, 2004
    
    
    4,955,801
    
    
    
    10.20Granted
    
    
    317,900
    
    
    
    13.46Exercised
    
    
    (727,178
    )
    
    
    4.11Canceled
    
    
    (170,891
    )
    
    
    17.49Outstanding at December 31, 2005
    
    
    4,375,632
    
    
    
    11.17Granted
    
    
    2,548,347
    
    
    
    12.84Exercised
    
    
    (224,249
    )
    
    
    7.86Canceled
    
    
    (178,206
    )
    
    
    18.71Outstanding at December 31, 2006
    
    
    6,521,524
    
    
    $
    11.73
    
    
    
    7.25
    
    
    $
    12,871,106Vested and expected to vest at December 31, 2006
    
    
    6,258,895
    
    
    $
    11.66
    
    
    
    7.16
    
    
    $
    12,871,091Exercisable at December 31, 2006
    
    
    3,434,055
    
    
    $
    9.38
    
    
    
    5.50
    
    
    $
    12,869,460
  52




---



##### Table of Contents



Options Outstanding
    
    Options ExercisableNumber
    
    Weighted Average
    
    Weighted Average
    
    Number
    
    Weighted AverageExercise Price
    
    Outstanding
    
    Remaining Years
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$   .30  $  7.41
    
    
    1,932,568
    
    
    
    4.01
    
    
    $
    3.36
    
    
    
    1,932,568
    
    
    $
    3.367.55     13.29
    
    
    1,725,905
    
    
    
    9.35
    
    
    
    10.55
    
    
    
    294,535
    
    
    
    10.0013.72     15.78
    
    
    1,710,819
    
    
    
    8.31
    
    
    
    15.22
    
    
    
    598,613
    
    
    
    14.7515.98     32.95
    
    
    1,152,232
    
    
    
    7.96
    
    
    
    22.33
    
    
    
    608,339
    
    
    
    22.93.30     32.95
    
    
    6,521,524
    
    
    
    7.25
    
    
    
    11.73
    
    
    
    3,434,055
    
    
    
    9.38
  9. Employee Benefit Plan
  10. Income Taxes
  December 31,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Incomes tax benefit at statutory rate
    
    $
    (22,889,606
    )
    
    
    
    
    
    $
    (28,068,471
    )
    
    
    
    
    
    $
    (23,660,339
    )Incentive
stock options
    
    
    2,132,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State income tax benefit net of federal tax benefit
    
    
    (2,416,408
    )
    
    
    
    
    
    
    (3,269,151
    )
    
    
    
    
    
    
    (2,783,569
    )Other
    
    
    9,695
    
    
    
    
    
    
    
    (136,356
    )
    
    
    
    
    
    
    571,433General business credit
    
    
    (2,663,331
    )
    
    
    
    
    
    
    (2,965,400
    )
    
    
    
    
    
    
    (2,247,414
    )Valuation allowance
    
    
    25,827,506
    
    
    
    
    
    
    
    34,439,378
    
    
    
    
    
    
    
    28,119,889Income tax expense
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 53




---



##### Table of Contents



December 31,2006
    
    
    2005Net operating loss carryforwards
    
    $
    125,480,818
    
    
    $
    113,542,150Research credits
    
    
    12,023,544
    
    
    
    9,360,213Deferred revenue
    
    
    10,280,833
    
    
    
    Deferred stock compensation
    
    
    1,380,850
    
    
    
    501,775Other
    
    
    462,546
    
    
    
    396,947Total deferred tax assets
    
    
    149,628,591
    
    
    
    123,801,085Valuation allowance
    
    
    (149,628,591
    )
    
    
    (123,801,085
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  December 31,2006
    
    
    2005Deferred tax valuation allowance at beginning of year
    
    $
    123,801,085
    
    
    $
    87,791,613Change in cumulative tax differences
    
    
    25,827,506
    
    
    
    34,439,378Excess tax benefit from disqualifying disposition of incentive stock options
    
    
    
    
    
    
    1,570,094Deferred tax valuation allowance at end of year
    
    $
    149,628,591
    
    
    $
    123,801,085
  11. Commitments and Contingencies
   2007
    
    $
    1,381,7732008
    
    
    1,237,0982009
    
    
    209,4022010
    
    
    1,755Thereafter
    
    
    $
    2,830,028
  54




---



##### Table of Contents



12. Quarterly Results of Operations (Unaudited)
  Year Ended December 31, 20061stQuarter
    
    2ndQuarter
    
    3rdQuarter
    
    4thQuarterRevenues
    
    $
    4,166,667
    
    
    $
    6,250,000
    
    
    $
    10,292,683
    
    
    $
    10,965,495Operating loss
    
    
    (15,801,288
    )
    
    
    (13,369,049
    )
    
    
    (14,625,330
    )
    
    
    (20,757,940
    )Net loss
    
    
    (19,224,807
    )
    
    
    (13,056,223
    )
    
    
    (14,373,320
    )
    
    
    (20,668,022
    )Net loss per share data:Basic and diluted
    
    
    (0.49
    )
    
    
    (0.33
    )
    
    
    (0.36
    )
    
    
    (0.52
    )
 Year Ended December 31, 20051st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterOperating loss
    
    $
    (17,975,888
    )
    
    $
    (21,612,599
    )
    
    $
    (22,541,263
    )
    
    $
    (18,199,485
    )Net loss
    
    
    (18,631,557
    )
    
    
    (22,205,379
    )
    
    
    (23,057,352
    )
    
    
    (18,660,039
    )Net loss per share data:Basic and diluted
    
    
    (0.50
    )
    
    
    (0.59
    )
    
    
    (0.61
    )
    
    
    (0.49
    )
  55




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Managements annual report on internal control over financial reporting.
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Code of Ethics
 http:// www.atherogenics.com
 
 
 Item 11. Executive Compensation
  56




---



##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (1)
    
    Financial Statements, filed as part of this reportReport of Independent Registered Public Accounting Firm on Internal ControlReport of Independent Registered Public Accounting Firm on Financial StatementsBalance Sheets as of December 31, 2006 and 2005

Statements of Operations for the years ended December 31, 2006, 2005 and 2004Statements Shareholders (Deficit) Equity for the years ended December 31, 2006,
2005 and 2004Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004Notes to Financial Statements(2)
    
    Financial Statement SchedulesNo financial statement schedules are provided, because the information called for
is not required or is shown either in the financial statements or the notes
thereto.(3)
    
    Listing of Exhibits
 Exhibit No.
    
    
    
    Description3.01
    
    
    
    Fourth Amended and Restated Articles of Incorporation
of AtheroGenics, Inc. (filed as Exhibit 3.01 to
Amendment No. 1 to AtheroGenics Annual Report on
Form 10-K for the year ended December 31, 2004 on
April 6, 2005 and incorporated herein by reference).3.02
    
    
    
    Third Amended and Restated Bylaws of AtheroGenics,
Inc., as amended (filed as Exhibit 3.02 to
AtheroGenics Annual Report on Form 10-K for the year
ended December 31, 2001 and incorporated herein by
reference).3.03
    
    
    
    Amendment No. 1 to Third Amended and Restated Bylaws
of AtheroGenics, Inc. (filed as Exhibit 3.02 to
AtheroGenics Current Report on Form 8-K on December
8, 2006 and incorporated herein by reference).
 57




---



##### Table of Contents



Exhibit No.
    
    
    
    Description4.01
    
    
    
    Form of Common Stock Certificate (filed as Exhibit 4.01 to Amendment No. 4 to
AtheroGenics Registration Statement on Form S-1, Registration No. 333-31140, on August
4, 2000 and incorporated herein by reference).4.02
    
    
    
    Rights Agreement dated as of November 9, 2001 between AtheroGenics, Inc. and American
Stock Transfer & Trust Company, as Rights Agent (filed as Exhibit 4.4 of AtheroGenics
Form 8-K on November 19, 2001 and incorporated herein by reference).4.03
    
    
    
    Indenture dated August 19, 2003 between AtheroGenics, Inc. and The Bank of New York
Trust Company of Florida N.A., as Trustee (filed as Exhibit 4.1 to AtheroGenics
Registration Statement on Form S-3, Registration No. 333-110160, on October 31, 2003 and
incorporated herein by reference).4.04
    
    
    
    Global 41/2% Convertible Note Due 2008 (filed as Exhibit 4.04 to Amendment No. 1 to
AtheroGenics Annual Report on Form 10-K for the year ended December 31, 2004 on April
6, 2005 and incorporated herein by reference).4.05
    
    
    
    Indenture dated January 12, 2005 between AtheroGenics, Inc. and The Bank of New York
Trust Company of Florida N.A., as Trustee, including the form of Global 1.50%
Convertible Note Due 2012 filed as Exhibit A thereto (filed as Exhibit 4.5 to
AtheroGenics Registration Statement on Form S-3, Registration No. 333-123895, on April
6, 2005 and incorporated herein by reference).10.01
    
    
    
    Amended and Restated Master Rights Agreement dated October 31, 1995, as amended by First
Amendment dated November 1, 1995; Second Amendment dated July 30, 1996; Third Amendment
dated April 13, 1999; Fourth Amendment dated May 11, 1999; and Fifth Amendment dated
August 30, 1999 (filed as Exhibit 4.02 to AtheroGenics Registration Statement on Form
S-1, Registration No. 333-31140, on February 25, 2000 and incorporated herein by
reference).10.02+
    
    
    
    Exclusive License Agreement dated July 17, 1998 between The Regents of the University of
California and AtheroGenics, Inc. (filed as Exhibit 10.02 to Amendment No. 4 to
AtheroGenics Registration Statement on Form S-1, Registration No. 333-31140, on August
4, 2000 and incorporated herein by reference).10.03+
    
    
    
    License Agreement dated January 11, 1995 between Emory University and AtheroGenics, Inc.
(filed as Exhibit 10.03 to Amendment No. 2 to AtheroGenics Registration Statement on
Form S-1, Registration No. 333-31140, on July 13, 2000 and incorporated herein by
reference).10.04+
    
    
    
    Patent Purchase Agreement dated April 26, 1995 between AtheroGenics, Inc. and Sampath
Parthasarathy, together with Services Agreement dated April 26, 1995 between
AtheroGenics, Inc. and Sampath Parthasarathy (filed as Exhibit 10.04 to Amendment No. 2
to AtheroGenics Registration Statement on Form S-1, Registration No. 333-31140, on July
13, 2000 and incorporated herein by reference).10.05+
    
    
    
    Sponsored Research Agreement dated October 14, 1996 between Emory University and
AtheroGenics, Inc. (filed as Exhibit 10.05 to Amendment No. 2 to AtheroGenics
Registration Statement on Form S-1, Registration No. 333-31140, on July 13, 2000 and
incorporated herein by reference).10.06#
    
    
    
    AtheroGenics, Inc. 1995 Stock Option Plan, together with form of nonqualified stock
option agreement (filed as Exhibit 10.07 to AtheroGenics Registration Statement on Form
S-1, Registration No. 333-31140, on February 25, 2000 and incorporated herein by
reference).10.07#
    
    
    
    AtheroGenics, Inc. 1997 Equity Ownership Plan, as amended by Amendment No. 1 and
Amendment No. 2 (filed as Exhibit 10.08 to Amendment No. 2 to AtheroGenics Registration
Statement on Form S-1, Registration No. 333-31140, on July 13, 2000 and incorporated
herein by reference).10.08
    
    
    
    Preferred Shares Purchase Warrant dated August 24, 1998 between AtheroGenics, Inc. and
certain Lenders named therein (filed as Exhibit 10.09 to AtheroGenics Registration
Statement on Form S-1, Registration No. 333-31140, on February 25, 2000 and incorporated
herein by reference).10.09
    
    
    
    Series C Convertible Preferred Stock Purchase Warrants of AtheroGenics, Inc. (filed as
Exhibit 10.10 to AtheroGenics Registration Statement on Form S-1, Registration No.
333-31140, on February 25, 2000 and incorporated herein by reference).10.10
    
    
    
    Promissory Note dated April 1, 1999 between Inhibitex, Inc. and AtheroGenics, Inc.
(filed as Exhibit 10.11 to AtheroGenics Registration Statement on Form S-1,
Registration No. 333-31140, on February 25, 2000 and incorporated herein by reference).
 58




---



##### Table of Contents



Exhibit No.
    
    
    
    Description10.11++
    
    
    
    Lease Agreement dated June 19, 1998 between Cousins Properties, Inc. and AtheroGenics,
Inc. (filed as Exhibit 10.12 to AtheroGenics Registration Statement on Form S-1,
Registration No. 333-31140, on February 25, 2000 and incorporated herein by reference).10.12#
    
    
    
    Employment Agreement dated March 1, 2001 between AtheroGenics, Inc. and Russell M.
Medford (filed as Exhibit 10.14 to AtheroGenics Annual Report on Form 10-K for the year
ended December 31, 2000, and incorporated herein by reference).10.13
    
    
    
    Amendment dated January 1, 2001 to Promissory Note dated April 1, 1999 between
Inhibitex, Inc. and AtheroGenics, Inc. (filed as Exhibit 10.15 to AtheroGenics Annual
Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by
reference).10.14+
    
    
    
    Exclusive License Agreement dated as of June 29, 2001 between AtheroGenics, Inc. and
National Jewish Medical and Research Center (filed as Exhibit 10.17 to Amendment No. 1
to AtheroGenics Registration Statement on Form S-1, Registration No. 333-64228, on July
23, 2001 and incorporated herein by reference).10.15#
    
    
    
    AtheroGenics, Inc. 2001 Equity Ownership Plan (filed as Appendix B to the proxy
statement on Schedule 14A for AtheroGenics 2001 Annual Shareholders Meeting as filed
on March 22, 2001 and incorporated herein by reference).10.16
    
    
    
    Equipment Term Note dated March 6, 2002 between AtheroGenics, Inc. and Silicon Valley
Bank (filed as Exhibit 10.20(b) to AtheroGenics Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 and incorporated herein by reference).10.17
    
    
    
    Loan and Security Agreement dated March 6, 2002 between AtheroGenics, Inc. and Silicon
Valley Bank (filed as Exhibit 10.20(c) to AtheroGenics Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated herein by reference).10.18
    
    
    
    First Loan Modification dated June 20, 2003 between AtheroGenics, Inc. and Silicon
Valley Bank.
(filed as Exhibit 10.23 to AtheroGenics Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003 and incorporated herein by reference).10.19
    
    
    
    Second Loan Modification dated August 13, 2003 between AtheroGenics, Inc. and Silicon
Valley Bank (filed as Exhibit 10.25 to AtheroGenics Annual Report on Form 10-K for the
year ended December 31, 2003 and incorporated herein by reference).10.20
    
    
    
    Third Loan Modification dated December 29, 2003 between AtheroGenics, Inc. and Silicon
Valley Bank (filed as Exhibit 10.26 to AtheroGenics Annual Report on Form 10-K for the
year ended December 31, 2003 and incorporated herein by reference).10.21
    
    
    
    Negative Pledge Agreement dated December 29, 2003 between AtheroGenics, Inc. and Silicon
Valley Bank (filed as Exhibit 10.27 to AtheroGenics Annual Report on Form 10-K for the
year ended December 31, 2003 and incorporated herein by reference).10.22#
    
    
    
    Employment Agreement dated December 22, 2004 between AtheroGenics, Inc. and Mark P.
Colonnese (filed as Exhibit 10.28 to AtheroGenics Form 8-K on December 22, 2004 and
incorporated herein by reference).10.23#
    
    
    
    Employment Agreement dated December 22, 2004 between AtheroGenics, Inc. and Martin A.
Wasserman (filed as Exhibit 10.29 to AtheroGenics Form 8-K on December 22, 2004 and
incorporated herein by reference).10.24#
    
    
    
    Employment Agreement dated December 22, 2004 between AtheroGenics, Inc. and Robert A. D.
Scott (filed as Exhibit 10.30 to AtheroGenics Form 8-K on December 22, 2004 and
incorporated herein by reference).10.25#
    
    
    
    Employment Agreement dated December 22, 2004 between AtheroGenics, Inc. and W. Charles
Montgomery (filed as Exhibit 10.31 to AtheroGenics Form 8-K on December 22, 2004 and
incorporated herein by reference).10.26#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan (filed as Appendix B to the proxy
statement on Schedule 14A for AtheroGenics 2004 Annual Shareholders Meeting as filed
on March 26, 2004 and incorporated herein by reference).10.27#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan form of incentive equity ownership
agreement and form of directors nonqualified equity ownership agreement (filed as
Exhibit 10.33 to AtheroGenics Annual Report on Form 10-K for the year ended December
31, 2004 on March 16, 2005 and incorporated herein by reference).
 59




---



##### Table of Contents



Exhibit No.
    
    
    
    Description10.28#
    
    
    
    Summary of non-employee director compensation (filed as the first paragraph under the
caption Director Compensation in the proxy statement on Schedule 14A for AtheroGenics
2005 Annual Meeting of Shareholders as filed with the SEC on March 28, 2005 and
incorporated herein by reference).10.29#
    
    
    
    Summary of non-employee directors compensation and 2005 executive officers target cash
incentive (filed under Item 1.01 of AtheroGenics, Inc. Form 8-K on April 29, 2005 and
incorporated herein by reference).10.30#
    
    
    
    Employment Agreement dated May 31, 2005 between AtheroGenics, Inc. and Joseph M. Gaynor,
Jr. (filed as Exhibit 10.1 to AtheroGenics Current on Form 8-K on July 7, 2005 and
incorporated herein by reference).10.31#
    
    
    
    Transition Agreement dated June 22, 2005 between AtheroGenics, Inc. and Martin A.
Wasserman (filed as Exhibit 10.1 to AtheroGenics Current Report on Form 8-K on July 22,
2005 and incorporated herein by reference).10.32+
    
    
    
    First Amendment dated August 3, 2005 to License Agreement dated January 11, 1995 between
AtheroGenics, Inc. and Emory University (filed as Exhibit 10.1 to AtheroGenics
Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated
herein by reference).10.33
    
    
    
    Registration Rights Agreement dated January 12, 2005 among AtheroGenics, Inc., as
Issuer, and Morgan Stanley & Co. Incorporated, Lehman Brothers, Inc., JPMorgan
Securities, Inc. and Lazard Freres & Co., as Initial Purchasers (filed as Exhibit 99.1
to AtheroGenics Current Report on Form 8-K on January 13, 2005 and incorporated herein
by reference).10.34+
    
    
    
    Commercial Supply Agreement for Production of AGI-1067 and Probucol between The Dow
Chemical Company and AtheroGenics, Inc., dated October 6, 2005 (filed as Exhibit 10.34
to AtheroGenics Annual Report on Form 10-K for the year ended December 31, 2005 and
incorporated herein by reference).10.35+
    
    
    
    License and Collaboration Agreement between AtheroGenics, Inc and IPR Pharmaceuticals,
LP, dated December 22, 2005 (filed as Exhibit 10.35 to AtheroGenics Annual Report on
Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).10.36+
    
    
    
    Co-Promotion Agreement by and between AstraZeneca Pharmaceuticals LP and AtheroGenics,
Inc., dated as of December 22, 2005 (filed as Exhibit 10.36 to AtheroGenics Annual
Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by
reference).10.37+
    
    
    
    Transition Services Agreement, by and between IPR Pharmaceuticals, LP and AtheroGenics,
Inc., dated December 22, 2005 (filed as Exhibit 10.37 to AtheroGenics Annual Report on
Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).10.38#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan form of nonqualified equity ownership
agreement (filed as Exhibit 10.02 to AtheroGenics Current Report on Form 8-K on March
10, 2006 and incorporated herein by reference).10.39
    
    
    
    Form of Indemnification Agreement dated July 5, 2006 (filed as Exhibit 10.1 to
AtheroGenics Current Report on Form 8-K on July 6, 2006 and incorporated herein by
reference).10.40#
    
    
    
    Employment Agreement dated September 25, 2006 between AtheroGenics, Inc. and Russell M.
Medford (filed as Exhibit 10.1 to AtheroGenics Current Report on Form 8-K on September
29, 2006 and incorporated herein by reference).10.41#
    
    
    
    Employment Agreement dated September 25, 2006 between AtheroGenics, Inc. and Mark P.
Colonnese (filed as Exhibit 10.2 to AtheroGenics Current Report on Form 8-K on
September 29, 2006 and incorporated herein by reference).10.42#
    
    
    
    Employment Agreement dated September 25, 2006 between AtheroGenics, Inc. and Robert A.D.
Scott (filed as Exhibit 10.3 to AtheroGenics Current Report on Form 8-K on September
29, 2006 and incorporated herein by reference).10.43#
    
    
    
    Employment Agreement dated September 25, 2006 between AtheroGenics, Inc. and W. Charles
Montgomery (filed as Exhibit 10.4 to AtheroGenics Current Report on Form 8-K on
September 29, 2006 and incorporated herein by reference).10.44#
    
    
    
    Employment Agreement dated September 25, 2006 between AtheroGenics, Inc. and Joseph M.
Gaynor, Jr. (filed as Exhibit 10.5 to AtheroGenics Current Report on Form 8-K on
September 29, 2006 and incorporated herein by reference).23.01*
    
    
    
    Consent of Ernst & Young LLP.
 60




---



##### Table of Contents



Exhibit No.
    
    
    
    Description24.01*
    
    
    
    Powers of Attorney.31.1*
    
    
    
    Certifications of Chief Executive Officer under Rule 13a-14(a).31.2*
    
    
    
    Certifications of Chief Financial Officer under Rule 13a-14(a).32*
    
    
    
    Certifications of Chief Executive Officer and Chief Financial Officer under Section 1350.
 
 *
    
    Filed herewith.**
    
    Filed as the exhibit of the same number with AtheroGenics registration statement on Form
S-1, Registration No. 333-31140, declared effective by the SEC on August 8, 2000, and
incorporated herein by reference.+
    
    Certain confidential information contained in this document has been
omitted and filed separately with the Commission pursuant to a request
for confidential treatment under Rule 406 of the Securities Act of
1933, as amended.++
    
    We agree to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to this agreement upon request by the
Commission.#
    
    Management contract or compensatory plan or arrangement. 61




---



##### Table of Contents



SIGNATURES
  ATHEROGENICS, INC.By:
    /s/ RUSSELL M. MEDFORDRussell M. Medford, M.D., Ph.D.President and Chief Executive Officer  Name
    
    Title
    
    DatePrincipal Executive Officer:/s/ RUSSELL M. MEDFORD

Russell M. Medford
    
    President and Chief Executive Officer,
Director
    
    March 7, 2007Principal Financial and Principal
Accounting Officer:/s/ MARK P. COLONNESE

Mark P. Colonnese
    
    Executive Vice President, Commercial
Operations and Chief Financial Officer
    
    March 7, 2007/s/ CHARLES A. DEIGNAN

Charles A. Deignan
    
    Vice President, Finance and Administration
and Principal Accounting Officer
    
    March 7, 2007*

Michael A. Henos
    
    Director
    
    March 7, 2007*

R. Wayne Alexander
    
    Director
    
    March 7, 2007*

Samuel L. Barker
    
    Director
    
    March 7, 2007*

David Bearman
    
    Director
    
    March 7, 2007*

Vaughn D. Bryson
    
    Director
    
    March 7, 2007*

T. Forcht Dagi
    
    Director
    
    March 7, 2007*

Margaret E. Grayson
    
    Director
    
    March 7, 2007*

Arthur M. Pappas
    
    Director
    
    March 7, 2007*

William A. Scott
    
    Director
    
    March 7, 2007
 *By:
    
    /s/ JOSEPH M. GAYNOR, JR.Joseph M. Gaynor, Jr.Attorney-in-Fact
 62