Allozyne Looks to Rustle Up Interest on Wall Street With Backdoor IPO

7/13/11Follow @xconomy

Any company that aspires to get a listing on the stock market had better be ready for marathon hours with investors, accountants, and lawyers. But there’s a special thicket of challenges to work through when you’re introducing yourself to the NASDAQ the way Seattle-based Allozyne is.

The privately-held biotech company is taking the backdoor route to an IPO by acquiring the shell of a public company—San Francisco-based Poniard Pharmaceuticals (NASDAQ: PARD). So besides running their regular business, a few new tasks have piled up in front of Allozyne CEO Meenu Chhabra and finance chief John Bencich. They need to rustle up another 2.2 million votes from Poniard’s existing shareholder base to authorize the deal and, assuming that happens, they need to introduce themselves and their newly merged company in a hurry to Wall Street.

Poniard’s shareholders, who have lost most of their money on a drug that failed in a trial for small-cell lung cancer, could be excused for feeling too jaded to turn in their votes. And Allozyne is an unknown quantity to most Wall Street investors—it has an unfamiliar protein engineering technology platform, and a lead drug candidate for multiple sclerosis that’s still in the first of three clinical trial stages normally required for FDA approval of a new drug. That basically means it needs to gather a lot more proof that it works before investors, in today’s market, will get excited.

For the always-enthusiastic Chhabra, it just means she’s got a lot of work to do.

“I’ve been doing a lot of cardio,” Chhabra joked, referring to how she’s been shuttling between meetings with investors on the East Coast.

For now, there are some key terms investors need to settle on to seal the deal. Allozyne is asking Poniard shareholders to trade in 15 to 25 of their existing shares to get just one back, in what’s known as a reverse stock split that companies often do to prop up their stock prices above $1. If those terms are accepted, Poniard shareholders will get about 35 percent ownership of Allozyne.

If Poniard shareholders go for the new structure, then Allozyne will have to go about the hard work of redefining the company. Allozyne has raised $43 million since it was founded in 2005, and has gone through long stretches in stealth mode, keeping competitors in the dark. To go public via this route, Allozyne will have to disclose much more about its strategy and risks through a new regulatory filing called an S-4. The document will be similar to an S-1 investor prospectus for a traditional IPO, Bencich says.

Meenu Chhabra

For now, Allozyne’s executives are out doing what they can to prime the pump of interest. “The response is encouraging. It’s a fresh story no one has heard of before,” Chhabra says.

Allozyne considered a conventional IPO, but decided against it. Some biotechs have done well in recent stock market debuts, such as Parsippany, NJ-based Pacira Pharmaceuticals (NASDAQ: PCRX), but several have tried, found little investor appetite, and withdrew IPO paperwork. San Diego-based Ambit Biosciences, and Durham, NC-based Aldagen are a couple recent examples. “If you look at what’s happening in traditional IPOs, there are painful processes,” Chhabra says.

Chhabra is trying to build a base of interest with Poniard shareholders, and then to bolster that interest by setting up a couple of catalytic events. If Allozyne can complete the deal as planned in the late part of the third quarter or early fourth quarter, Chhabra says she has a couple important steps in mind for the early days of the new public company. One, she plans to release more data from the second part of a Phase I clinical trial of Allozyne’s long-lasting multiple sclerosis drug, AZ01, which I reported on first in January at the JP Morgan Healthcare Conference. And two, Chhabra says she plans to … Next Page »

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  • nanostring

    A few points of note that the article does not mention:

    1. Based on today’s price of PARD, the merger values Allozyne @ ~$20 M ($11M*65/35).
    http://finance.yahoo.com/q?s=PARD&ql=1
    That is: they took valuable technology from Caltech + $43M in investor money and ended up with $20M in value. You do the math.

    2. Even that $20M may be too rich, considering that PARD got immediately hit by two lawsuits for agreeing to the terms of the merger.
    http://yhoo.it/qbHfKv
    http://yhoo.it/mOWjQe

    3. As of now PARD shareholders have twice rejected the reverse stock-split, which is a prerequisite to the merger:
    http://biz.yahoo.com/e/110725/pard8-k.html (second graph)

    Other than that, everything is great for Allozyne and its shareholders, including the public employees of Oregon and Washington…