Biotech Allozyne aims for 'backdoor' public debut

Intrepid biotechs tend to get creative about financing strategies when traditional funding routes appear too rocky to traverse. After considering a traditional IPO, little-known biotech Allozyne is now advancing plans to go public by acquiring a shell company that is listed on the Nasdaq.

Allozyne CEO Meenu Chhabra talked to Xconomy's Luke Timmerman about the company's plans. The Seattle-based firm aims to buy the public shell of Poniard Pharmaceuticals ($PARD), which fizzled after its small-cell lung cancer drug failed in clinical development. The deal would give Poniard shareholders a 35% stake in the new company and provide Allozyne the ability to tap the public markets for future financing. The start-up has been around for about 6 years and has raised $43 million from venture backers such as MPM Capital.

Its gambit appears to be another sign of the tricky financing environment for biotechs. Wall Street doesn't seem interested in IPO stories involving young firms like Allozyne, which is in Phase I with an experimental multiple sclerosis therapy (even some venture firms are staying away from such early-stage developers). And the scant IPO successes of recent years in biotech have involved companies--including Pacira Pharmaceuticals ($PCRX), Aveo Pharmaceuticals ($AVEO) and Ironwood Pharmaceuticals ($IRWD)--with late-stage drug candidates. Indeed, public investors seem most comfortable in backing IPOs for companies with strong pipelines with near-term chances to get a product onto the market. Strong support from large pharma partners helps too.

Allozyne's plan to go public faces some challenges of its own, including winning enough votes from Poniard shareholders to consummate the deal and gaining favor among public investors to support the company in the future. Yet the firm is going down a road that appears to have worked out for other biotechs such as neuroscience drug developer Transcept Pharmaceuticals ($TSPT), which went public in 2009 through its buyout of shell company Novacea. Novacea, like Ponaird, went south due to the failure of a cancer drug.

- check out Xconomy's piece