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Bayhill Therapeutics Inc. started off 2008 with an eye on the public markets. The firm filed for an initial public offering, with hopes of bringing in $86 million to support its autoimmune disease drug pipeline.

The Palo Alto, Calif.-based firm, which joins 18 other companies with pending IPOs as of Dec. 31, has not yet set the share price or number of shares to be offered. It is seeking a listing on Nasdaq under the ticker "BTHX."

Formed in late 2000 as SunVex Inc. - it went through another name change, to Tolerion Inc., before settling on Bayhill Therapeutics in 2002 - the firm focuses on developing drugs using its BHT-DNA platform. That technology is based on the concept of restoring tolerance to the immune system by turning off the immune cells that are attacking a specific antigen, without shutting down the immune system completely. Bayhill's compounds are designed using a plasmid that encodes and delivers the disease-specific antigen, which then is taken up by antigen-presenting cells.

The firm's lead program is BHT-3009, in development for multiple sclerosis. In MS, a patient's immune system attacks myelin basic protein (MBP) in the myelin sheath of the central nervous systems, so BHT-3009 aims to reprogram the immune system to accept MBP.

Data so far have been promising. Results from a Phase II proof-of-concept trial completed in August in relapsing-remitting multiple sclerosis patients showed a decrease in brain lesions, measured by magnetic resonance imaging, among a group of subjects who had high levels of anti-MBP antibodies when they started the trial.

Further studies are planned, beginning in the fourth quarter of this year.

The company is in the middle of a Phase I/II study of a second program, BHT-3021, targeting Type I diabetes, a disease believed to occur when the immune system attacks antigens in the pancreas, such as proinsulin, and prevents islet cells from producing sufficient insulin for maintaining normal glucose levels. The only existing treatment for Type I diabetics is insulin replacement therapy, which does not fully restore glucose regulation. By prompting the immune system to tolerate proinsulin, Bayhill believes BHT-3021 could offer an alternative treatment option to patients, and, if administered early in the course of the disease, might even be able to restore pancreatic function. Top-line results from the BHT-3021 trial are expected in the first half of 2009.

Earlier in its pipeline, Bayhill is investigating BHT-3034 in myasthenia gravis, an autoimmune disease believed to be caused by an immune system attack on acetylcholine receptors, which results in blocked nerve impulses and muscle stimulation. That program is in preclinical studies.

Funds from the prospective IPO are anticipated primarily to fund ongoing and future work on the company's lead clinical programs, with funding also supporting working capital and other general corporate purposes, including research and development activities. A portion also will be used to make scheduled payments under its existing $10 million credit facility with TriplePoint Capital LLC.

Bayhill said it estimates that proceeds from the IPO, plus existing cash and investments - $17.7 million as of Sept. 30 - would fund operations for at least 18 months. After that, the firm would need to look at options for raising more money through either public or private financings.

The company also said in its prospectus that it might consider potential collaboration opportunities. At this time, Bayhill holds worldwide rights to all programs emerging from the DHT-DNA platform.

As of Sept. 30, the company had about 65.7 million shares outstanding. Its principal stockholders include several venture capital firms that contributed to the company's Series A and B rounds totaling $65 million: U.S. Venture Partners, which holds 18.4 million shares, or 21 percent of the firm, prior to the proposed offering; Morgenthaler Partners VII LP, with 9.8 million shares, or 11.4 percent; De Novo Ventures II LP, with 9.5 million shares, or 11 percent; CMEA Ventures, with 9 million shares, or 10.5 percent; Eli Lilly & Co., with 7.9 million shares, or 9.2 percent; Latterell Venture Partners, with 6.3 million shares, or 7.3 percent; and Montreux Equity Partners, with 4.8 million, or 5.5 percent.

All those firms are based in California, except for Lilly, which has its headquarters in Indianapolis.

Pacific Growth Equities LLC, Lazard Capital Markets, Merriman Curhan Ford & Co., and Punk, Ziegel & Co. are listed as underwriters.

In other financings news:

• Arcion Therapeutics Inc., of Baltimore, raised $8.8 million in a Series A round led by CMEA Ventures and InterWest Partners. That funding is expected to help the start-up firm continue its work with ARC-4558 (topical clonidine gel) in alleviating moderate and severe pain associated with diabetic neuropathy. Arcion also is testing other topical treatments in pain relief, with the goal of providing relief with a favorable risk-benefit profile.

• AtheroGenics Inc., of Atlanta, said it restructured an additional $17.5 million of its remaining 2008 convertible debt, reducing its original $100 million in face value of 2008 convertible notes to $30.5 million. Under the terms, the $17.5 million of notes were exchanged for $5.5 million in cash and $11.5 million of the firm's 4.5 percent convertible notes due March 1, 2011. As of Dec. 31, AtheroGenics had about $93 million in cash and short-term investments. The company's stock (NASDAQ:AGIX) closed at 40 cents Wednesday, up 3 cents.

• Living Cell Technologies Ltd., of Melbourne, Australia, said Palmert Members Ltd., a British Virgin Island company, will purchase 24.1 million shares of LCT at A29 cents (US25 cents) each for an aggregate purchase price of $6 million. In that arrangement, Palmert will make the investment by exercising an option that was granted to NaviGroup Management Ltd., which allows the holder to purchase up to $6 million in shares at 80 percent of the 30-day average closing price. That investment brings the total to A$14 million raised by LCT and is expected to support Phase I/IIa trials of DiabeCell, as well as expansion of infrastructure required for clinical trials.

• NeurogesX Inc., of San Mateo, Calif., completed a $25 million private placement to support development of its late-stage pain management portfolio. The firm said in December that it entered a securities purchase agreement in connection with the private placement, and sold a total of 4 million shares priced at $6.18 each. The firm also issued warrants, which were purchased at a price underlying share of $0.125. SV Life Sciences led the financing, with investments from Deerfield Management and Wasatch Advisors Inc. and its private equity affiliate, Cross Creek Capital. Pacific Growth Equities LLC served as exclusive placement agent. Shares of NeurogesX (NASDAQ:NGSX) fell 25 cents Wednesday to close at $5.46.

• Zogenix Inc., of San Diego, raised $18 million in a private placement led by Abingworth Management Ltd., with participation by existing investors Clarus Ventures, Domain Associates LLC and Scale Venture Partners. Proceeds will be used to support the commercialization of sumatriptan DosePro (previously Intraject), with is pending review by the FDA, as well as to advance the firm's late-stage, controlled-release opioid product recently licensed from Dublin, Ireland-based Elan Corp. Since inception, Zogenix has raised nearly $80 million.

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