"During the second quarter, we completed the Phase 2/3 EmbraceAC clinical trial comparing tecarfarin, ARYx's novel oral anticoagulant, to warfarin and have now completed extensive subanalyses of the data. As we continue to discuss the trial results with potential tecarfarin partners, we are also planning to meet with the Food and Drug Administration (FDA) to confirm the regulatory path to approval for the compound. Our further analyses of the substantial data set from the study confirm that the diligence of the trial's dose control center led to the exceptional warfarin result. We believe this vigilance resulted in our missing the primary endpoint intended to show superiority of our drug. In addition, some of the further subanalyses point to specific differences between tecarfarin and warfarin treated patients that we believe could be confirmed in the second Phase 3 study to be conducted in a real world setting," said Dr. Paul Goddard, chairman and chief executive officer of ARYx. "Of course, our immediate focus remains on the partnering of our three lead compounds, with our top near-term priority being the completion of a partnership of our antiarrythmic agent, budiodarone."

Company Highlights

ARYx announced on July 7, 2009 data from the Phase 2/3 clinical trial of its novel, oral anticoagulant, tecarfarin (formerly ATI-5923), compared to the leading anticoagulant agent, warfarin. The results continued to demonstrate tecarfarin's strong, predictable anticoagulant effect, in line with prior tecarfarin trials. ARYx believes that tecarfarin remains on an approvable regulatory track, even though the primary endpoint of superiority to warfarin was not met. The company is planning to meet with the FDA on next steps to agree on the path forward. At the same time, ARYx also continues its efforts to license the drug to a major pharmaceutical company;

In a sub analysis performed subsequent to the original primary efficacy and safety analysis, and on data collected from the EmbraceAC trial through the complete blinded period, the company focused on patients who were also taking concomitant medications known to inhibit cytochrome P450 2C9, the enzyme that affects the clearance of warfarin. Such medications included amiodarone (atrial fibrillation), lovastatin and fenofibrate (cholesterol lowering), and sertraline (depression), and were taken by about 30% of the enrolled patients. In patients with a targeted INR range of 2-3, the observed time in therapeutic range for this subpopulation was 69.3% on tecarfarin versus 64.9% on warfarin. This difference was statistically significant (p= 0.0398). To establish whether this difference may have clinical significance, the company performed a responder analysis on the same subpopulation. A "good responder" was a patient who was in therapeutic range more than 65% of the time through the treatment period. Good responders equated to 67.9% of the tecarfarin patients versus 53.8% of the warfarin patients, approaching statistical significance in this subpopulation (p=0.0676). According to previously published literature (Veeger et al;Br J of Haem;2005;128;513-519), in a series of over 2000 patients taking warfarin, it was shown that the adverse event rates for both bleeds and strokes were lower in good responders compared to those who were in target therapeutic range less than 65% of the time and particularly in those in range less than 45% of the time;

The highest short-term priority for ARYx continued to be securing a potential partnership for budiodarone (formerly ATI-2042), an agent for the treatment of atrial fibrillation. Significantly, since the end of the second quarter, Multaq®, the atrial fibrillation therapy from Sanofi-aventis, has been launched in the United States with the labeled indication of reduction in risk of cardiovascular related hospitalizations, and at a favorable price of more than $7.00 per day. ARYx believes this strengthens the partnering prospects for budiodarone since published data (Mehra at al; Heart Rhythm; 2004;1, B64-B69) correlated a reduction in atrial fibrillation burden (the primary endpoint in the budiodarone Phase 2b clinical trial CLN-205 where statistical significance was demonstrated) directly to a reduction of cardiovascular hospitalizations in patients. The company believes there is a strong likelihood a budiodarone partnership with a large pharmaceutical company can be completed within the next couple of months;

Partnering efforts on ATI-7505, an agent to treat various gastrointestinal disorders, continued during the quarter. Initial presentations of the product have been made to leading large and specialty pharmaceutical companies with a gastrointestinal therapeutic focus;

ARYx's cash position of $22.6 million as of June 30, 2009 is sufficient to fund operations through the first quarter of 2010, by which time the company currently expects to complete at least one corporate partnership.

Financial Results

As of June 30, 2009, ARYx had cash, cash equivalents and marketable securities totaling $22.6 million, which is in line with previous cash flow projections.

For the quarter, ARYx reported a net loss of $9.4 million or $0.34 per share, compared to a net loss of $11.9 million or $0.67 cents per share in the same quarter of 2008.

ARYx had no revenue in the second quarter of 2009 compared to revenue of $1.1 million for the second quarter of 2008. Revenues in 2008 were earned pursuant to the company's former collaboration agreement with Procter & Gamble Pharmaceuticals. That agreement was terminated in July 2008, with all payments to ARYx fully earned by the third quarter of 2008.

Research and development expenses for the second quarter of 2009 were $6.3 million, compared to $10.0 million during the same period of 2008. The decrease in 2009 is primarily due to the completion of the Phase 2b clinical trial of budiodarone in December 2008, lower drug manufacturing costs in support of the tecarfarin Phase 2/3 clinical trial, lower costs related to the ATI-9242 product candidate due to the substantial completion of a Phase 1 clinical study, and a reduction in other research-related expenditures.