As big pharma continues to scout for biotechs developing major new drugs, John McCamant, editor of the Medical Technology Stock Letter, thinks AtheroGenics (AGIX ) is "one of the more attractive acquisition candidates." Its lead product, AGI-1067, is an oral anti-inflammatory agent that has shown, in Phase 2 clinical trials, that it not only slows atherosclerosis -- a leading cause of coronary artery disease -- but actually reverses it. A few years ago, Merck was close to buying Esperion Therapeutics for its intravenously applied cardiovascular drug -- until Pfizer (PFE ) made a higher bid. Now, Merck (MRK ) may go after AtheroGenics, whose product is superior to Esperion's, says McCamant. Despite its current woes, he expects Merck will continue to pursue its goals in the billion-dollar anti-inflammation market. AtheroGenics will soon hold Phase 3 trials for AGI-1067. "Given the favorable data in earlier trials, we doubt potential suitors will wait for the next trial before making their move," he says. Pfizer certainly did not wait for Esperion's data, adds McCamant. "We know there is a lot of interest in AGI-1067." AtheroGenics is in serious talks with big drugmakers for a marketing pact for AGI-1067, he says, "but if the right suitor comes along, it may just sell the whole company." McCamant says Athero-Genics is worth 40. The stock hit 38 last September on excitement over its new drug but fizzled when Pfizer bought Esperion. It's now at 16. Joel Sendek of Lazard rates it a strong buy. Thomson First Call's (TOC ) consensus estimates a loss of $2.23 a share in 2005 and a loss of $1.51 in 2006. Merck and AtheroGenics declined comment.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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