AGIX: No Near-Term Upside

AtheroGenics (AGIX) just reported that top-line ANDES data showed a dose dependent response and statistically significant reduction in A1c at the six month period. However, we would categorize the reduction as only modest at 0.6% for the highest (150mg) dose, and continued signs of elevate liver activity give us cause to remain skeptical of the eventual commercial potential of AGI-1067.

Until a large development partner validates the program we choose to remain skeptical of AGI-1067. We are still not comfortable with the side effect profile on it, and with recent topline efficacy data showing only modest reduction in A1c levels, we are struggling to find exactly what differentiating characteristics AGI-1067 will contain in the approved label relative to other oral anti-diabetic medications.

Additionally, the dwindling cash position and need for financing before any additional trials remain areas of major concern. Finding financing in this environment is extremely difficult right now, and we believe that there are little reasons to own AtheroGenics at this point in time.

Toyota Feeling U.S. Slowdown

Toyota Motor (TM) continues to expand its production capacity in a manner that increases efficiency and meets local demand, powering it to emerge as the world's financially strongest automaker. A strong presence in North America has been further consolidated by gaining market share from the leading U.S. automakers.

Moreover, the company also has a strong cash flow and a strong balance sheet. However, Toyota is unable to offset sales losses in America even as it continues an aggressive expansion in China, the Middle East, and other emerging markets.

A sluggish U.S. economy, rising costs, pricing pressures, and huge capital expenditures prompt us to rate the stock a Hold with a six-month target price of $78.00.

Jamba Expected to Underperform

We maintain our Underperform rating on shares of Jamba (JMBA). As with many fast-growing restaurant chains, the Emeryville, California-based company is suffering from the effects of uncontrolled growth that has led to the opening of under-performing locations and a loss of attention to both innovation and current consumer trends.

The management has formulated a turnaround plan that will curtail unit expansion until store level performance improves, retrench non-store level personnel, close 30 under-performing stores, innovate menu offerings, and build relevance and awareness through effective marketing. However, its efforts face strong headwinds from a cash-squeezed consumer and rising food costs, while the company faces a severe cash flow shortage that poses a risk of bankruptcy, in our opinion.

Traffic is falling as consumers grapple with rising gas prices, mortgage payments, and the psychological blow of falling home values. California, one of the hardest hit housing markets in the country, is home to 74% of the comp base. At the end of the second quarter, the company had $9.5 million in cash, $69.6 million in working capital, no debt, and equity of $89.6 million. During the same quarter, it burned $1.656K in cash. The company has since raised $25 million in debt under a 2-year senior secured term note.

Glaxo Price Considers Avandia

GlaxoSmithKline (GSK) is the world's second largest pharmaceutical company, with global operations based in the U.K. and the U.S. Although Glaxo has made significant progress with its late-stage pipeline, we are worried about the recent negative news surrounding the company's second-largest-selling drug, Avandia, as well as generic competition to several other products.

Given the issues regarding Avandia and significant sales erosion of other products from generic competition, we expect 2008 sales to come in only about 2% higher than 2007. The company's efficiency initiative should keep SG&A expenses in check. We think Glaxo possesses one of the stronger late-stage pipelines in large-cap pharma but believe the shares will remain constrained until there's more visibility on the Avandia issue. Our price target is $47.

While the management's guidance for 2008 came as somewhat of a disappointment, we continue to like the fundamentals at Glaxo. We believe with the Avandia issue already baked into the stock price, the shares are currently fairly valued. We believe there's some potential upside in the stock if Avandia sales begin to show a rebound.