Assistant Managing Editor

Reverse mergers, which had dropped in status as the initial public offering (IPO) window creaked open for biotechs in the past year, look to be making a comeback, if the recent spate of deals is any indication. The latest deal has private firm Allozyne Inc. merging with struggling public biotech Poniard Pharmaceuticals Inc. in a stock-for-stock transaction.

Poniard, of San Francisco, has struggled since late 2009 when its platinum-based cancer candidate picoplatin fizzled in a Phase III study in small-cell lung cancer. Since then, Poniard's stock has lost more than 97 percent of its value, with shares closing at a mere 19 cents before the Allozyne deal was disclosed. (See BioWorld Today, Nov. 17, 2009.)

After the merger closes, which is expected to occur in the third quarter, picoplatin will be on the partnering block, and the newly combined firm will move forward with Allozyne's business plan, developing bioconjugated protein therapeutics, starting with a pegylated version of interferon-beta. Allozyne shareholders will own about 65 percent of the company.

Though often criticized for offering only limited liquidity to shareholders, reverse mergers tend to become a more palatable exit strategy for investors when the IPO market dries up.

The IPO drought of 2008-2009 saw the signing of several reverse mergers, including two highly publicized deals involving cash-rich failed biotechs: Novacea Inc., which merged with privately held Transcept Pharmaceuticals Inc., and Nuvelo Inc., which combined with ARCA BioPharma Inc.

The status of biotech's current IPO window is up for debate. Some firms have managed to squeak through – BioWorld Snapshots shows seven pricings on U.S. markets so far this year – but the terms have been less than stellar. Rather than risk a poor showing, for example, San Diego-based Ambit Biosciences Corp. yanked its proposed IPO in favor of another venture round. (See BioWorld Today, June 13, 2011.)

Others are more optimistic. Clovis Oncology Inc. filed for a $150 million IPO this week. (See the story in this issue.)

Still, no IPOs have priced in the past two months. Meanwhile, there has been a flurry of reverse merger activity. Most of the deals have involved biotechs merging with defunct firms that had become public shells – IntelliCell BioSciences Inc. with Media Exchange Group, VistaGen Therapeutics Inc. with Excalibur Enterprises Ltd. and Can-Fite BioPharma Ltd.'s spun-off ophthalmology program with Denali Concrete Management Inc.

But earlier this month, Lexington, Mass.-based Synageva BioPharma Corp. entered a stock-for-stock deal with publicly traded Trimeris Inc., of Durham, N.C., a once-promising firm whose HIV drug Fuzeon (enfuvirtide) turned out to be a commercial disappointment. Synageva shareholders get 75 percent of the combined firm. The biotech also gets access to Fuzeon's royalty stream, plus the $47.3 million that Trimeris had on its balance sheet. (See BioWorld Today, June 14, 2011.)

Allozyne's deal with Poniard doesn't come with that kind of cash. Poniard only had about $5.5 million in cash as of March 31 and is getting a $2.4 million loan from Bay City Capital to get it through the reverse merger transaction.

But "we believe we can access the public markets to accelerate our strategic plan," Meenu Chhabra, president and CEO of Allozyne, told investors on a conference call.

Chhabra will become the president, CEO and director of the combined firm.

Allozyne's plan is to "build a two-product clinical-stage pipeline," she added, with AZ01, which is in Phase Ib testing in multiple sclerosis patients, and earlier-stage AZ17, a bispecific antibody aimed at autoimmune and inflammatory diseases.

Founded in November 2005 by Seattle-based incubator Accelerator Corp., based on technologies developed by David Tirrell and William Goddard at the California Institute of Technology, Allozyne has a platform that aims to improve protein-based therapeutics.

The company's work focuses on the modifying proteins with non-natural amino acids, structures that are similar to those that occur naturally. (See BioWorld Today, Oct. 29, 2007.)

For instance, for AZ01, its pegylated interferon product, "our Biociphering platform selected the exact placement and architecture of the peg moiety," Chhabra explained, thereby allowing for the development of a long-acting version of interferon that "could not be created using conventional methods."

AZ01 is designed for once-a-month administration, which would give it a dosing advantage over existing interferon-betas, which require dosing once weekly or twice weekly.

The market for interferon-beta in MS is about $6 billion, and Allozyne isn't the only firm hoping to score with a long-acting version.

Among late-stage contenders are Biogen Idec Inc., which is in Phase III testing with PEG-avonex, a chemically modified version of Avonex (interferon-beta 1a) in relapsing-remitting MS, and Nuron Biotech Inc., which is set to move into pivotal trials this year with NU400, a long-acting version of recombinant human interferon-beta-1b.

Chhabra said early testing of AZ01 has shown that the product demonstrated a reduction in the typical flu-like symptoms associated with interferon-beta and demonstrated minimal injection site reactions.

Data from the ongoing Phase Ib trial are expected in the third quarter and, "with a positive outcome and access to additional resources, we would expect to launch a Phase II trial with an active comparator early next year," she said.

Allozyne has raised about $43 million since inception, led by venture firms MPM Capital, ARCH Venture Partners and OVP Venture Partners.

After the merger's close, Poniard shareholders will hold a 35 percent stake in the new company and will have two members on the board, including current Poniard CEO Ronald A. Martell.

As a condition of closing, Poniard will need to complete a reverse stock split to comply with Nasdaq listing requirements.

Shares of Poniard (NASDAQ:PARD) gained 2 cents, or 10 percent, to close at 21 cents Thursday.