ARYx Therapeutics Inc., with three Phase II products and one significant collaboration, registered to raise up to $86.25 million in an initial public offering.

The Fremont, Calif., company is applying technology to large-market drugs designed to improve safety through a different metabolism mechanism. Rather than being metabolized by the cytochrome P450 system in the liver, like most drugs, ARYx's products are designed to be eliminated by an esterase pathway.

Through its RetroMetabolic Drug Design technology, it creates new versions of existing drugs, and has three in Phase II development: ATI-7505 for the treatment of various gastrointestinal disorders, a product partnered last year with Procter & Gamble Pharmaceuticals Inc.; ATI-5923, for patients at risk for the formation of dangerous blood clots; and ATI-2042, for the treatment of atrial fibrillation.

The potential deal with P&G included a $25 million up-front payment and has milestone potential of $391 million remaining, of which $216 million could be earned prior to commercialization. ARYx also has an option to co-develop and co-promote the ATI-7505. (See BioWorld Today, July 13, 2006.)

ATI-7505 was designed to have the same therapeutic benefits as cisapride, a drug formerly marketed in the U.S. by Johnson & Johnson as Propulsid. It was launched in 1993 and reached sales of more than $1 billion before it was withdrawn from the market in 2000 due to serious cardiovascular side effects. ARYx said those effects occurred as blood levels of the drug rose significantly when CYP450 clearance was blocked, because of the presence of other drugs cleared by that metabolic pathway.

ATI-7505 has completed Phase II trials in various gastrointestinal disorders, including gastroesophageal reflux disease and functional dyspepsia. Other potential indications include chronic constipation, gastroparesis and irritable bowel syndrome with constipation.

ARYx also intends to partner its other two clinical-stage drugs, because it wants help with Phase III trials and commercialization, due to the large markets the product candidates address.

ATI-5923 is an oral anticoagulant in Phase II trials for treating patients at risk for the formation of dangerous blood clots, such as those with atrial fibrillation or those at risk of venous thromboembolism. ATI-5923 was designed to have the same therapeutic benefits as the drug warfarin, a longstanding oral anticoagulant. Warfarin, however, is metabolized by CYP450 and has many drug-drug interactions that often lead to serious side effects, ARYx said.

The third clinical-stage product, ATI-2042, is an oral anti-arrhythmic in Phase II development for treating atrial fibrillation. ATI-2042 was designed to have the efficacy of amiodarone, a drug that has been used for many years, despite its adverse side effects, because physicians consider it to be the most effective drug for treating patients with atrial fibrillation, ARYx said. ARYx has completed one small, encouraging Phase II study in six patients and is conducting an additional Phase II trial to assess dose responses

As of June 30, ARYx had $25.2 million in cash and equivalents. It net loss in 2006 was $27.3 million, with the loss for the first six months of this year at $12.2 million. The company has raised about $120 million in five financing rounds since its founding in 1998, the most recent a $30.4 million Series E round in February 2006.

In its filing, ARYx estimated that, following the IPO, it would have cash to last into the fourth quarter of 2009. That would allow the company to finish the ongoing Phase II proof-of-concept trial of ATI-2042 in atrial fibrillation; initiate and complete a second Phase II trial of the anticoagulant ATI-5923; and initiate Phase I development of another product, ATI-9242, for the treatment of schizophrenia.

Major ARYx stockholders include entities affiliated with MPM Capital, which now own 26.1 percent of the company; Nomura PhaseV Ventures LP, which owns 19.5 percent; and entities affiliated with OrbiMed Advisors, which own 14.6 percent.

ARYx's chairman and CEO is Paul Goddard, who has held top positions at a number of biotechnology and pharmaceuticals companies, including Neurex Corp. and Elan Pharmaceuticals Inc. ARYx co-founders include Peter Milner, president, research and development, who previously co-founded CV Therapeutics Inc.; and Pascal Druzgala, vice president, research and chief scientific officer, who previously co-founded Advanced Therapies Inc.

Morgan Stanley & Co. Inc. is acting as sole book-runner and lead manager for the offering. CIBC World Markets Corp., Jefferies & Co. Inc. and Leerink Swann & Co. Inc. are co-managers. The number of shares to be offered and their price range will be determined later. ARYx intends to trade on Nasdaq under the symbol "ARYX."