Bayhill Therapeutics Inc. raised $35.4 million in private financing to advance autoimmune disease candidates in multiple sclerosis and diabetes.

The Series B round was led by De Novo Ventures, of Menlo Park, Calif., and Lilly Ventures, of Indianapolis, and joined by both new and existing investors, "which shows a commitment and a belief in our platform and our focus," said Mark Schwartz, president and CEO of Bayhill.

The company has raised about $50 million to date, and expects the recent round to sustain operations until 2007, allowing enough time to advance its lead compound, BHT-3009, through Phase II trials. Developed using one of Bayhill's DNA-based platforms, BHT-3009 is an antigen-specific drug in the middle of a Phase I study in MS.

"We've also got two additional programs" in preclinical development, Schwartz told BioWorld Today, adding that funds will be used to move at least one, "but hopefully both into the clinic."

Incorporated in 2001 based on an autoimmune modulator platform licensed from Stanford University, the company focuses on developing drugs using two DNA-based technology platforms. The first, BHT-DNA, is based on plasmids that encode specific auto-antigens, the idea being to create products that are able to turn off a specific response in the immune system without shutting down a patient's entire system.

Existing treatments for autoimmune diseases include "a range of different ways to essentially turn off the immune system," Schwartz said. "But the body still has to protect itself from foreign invasion."

Bayhill Therapeutics develops products that target only the specific antigen causing an errant immune response. With BHT-3009, the goal is to target myelin basic protein, one of the primary antigens of MS, shutting down that immune response.

A second antigen-specific product, BHT-3021, is just starting preclinical development to target insulin as the chief antigen in Type I diabetes. The company is looking to possibly file an investigational new drug application sometime next year.

The company's other technology platform also is DNA-based, but uses a different mechanism of action. BHT-Oligo focuses on immunomodulating oligonucleotide sequences. Schwartz said the company has found a number of oligonucleotides and recently identified one for further development.

"We're still looking at a series of indications," he said, "and will probably pin one down later this year.

Headquartered in Palo Alto, Calif., Bayhill Therapeutics was founded by four researchers from Stanford University, including neurology professor Larry Steinman, who also serves on the company's board. The other founders were Hideki Garren, who left Stanford to work for Bayhill Therapeutics as its vice president of research, and Paul Utz and Bill Robinson.

"All are very involved in the company and still guide our ongoing research efforts," Schwartz said.

The company of 25 employees officially opened for business following its Series A round in 2002.

Existing investors who participated in the Series B are CMEA Ventures and Latterell Venture Partners, both of San Francisco; Morgenthaler Ventures and U.S. Venture Partners, both of Menlo Park, Calif.; and the Vertical Group, of New York. They were joined by new investors A.M. Pappas Life Science Ventures, of Research Triangle Park, N.C.; Montreaux Equity Partners, of Menlo Park; and Quintiles' PharmaBio Develompent, the venture group of Research Triangle Park, N.C.-based Quintiles Transnational Corp. Also participating as new investors were Boston Life Science Venture Corp., Grand Cathay Venture Capital Co. Ltd., PAC-LINK Bio Management Corp. and Prudence Venture Investment Corp.

Fred Dotzler, managing director of De Novo Ventures, and David Thompson, vice president of corporate strategy and business development for Eli Lilly and Co., joined Bayhill's board.