Backdoor IPOs -- technically a reverse merger with a public company -- have gotten a pretty bad rap recently. Chinese small caps looking for no-fuss access to public markets without much diligence haven't helped.

But not all reverse mergers are the same. At an extreme, there's Merck's (NYSE: MRK) acquisition of Schering-Plough, which was technically a reverse merger. The companies structured the deal as Schering-Plough acquiring Merck and then changing its name to Merck to avoid triggering a change-in-ownership provision in a contract between Schering-Plough and Johnson & Johnson (NYSE: JNJ). If Merck bought Schering-Plough outright, Johnson & Johnson had the ability to take back rights to the anti-inflammatory Remicade and its follow up, Simponi, that Schering-Plough markets outside the U.S. The strategy mostly worked, although Merck ended up giving up a little rather than gamble with the arbiter's decision.

In biotech, there are plenty of companies with failed drugs that make perfect shells and plenty of private companies that are looking to go public. There's no reason to shun them; there's a simple reason why the private companies didn't enter the market through the front door: The biotech IPO market still basically stinks.

Cheapest capital possible
Biotech IPOs are almost always a financing event. None of the owners of the company are selling their shares during the IPO. In fact, many times you'll see venture capital funds buying shares as part of the IPO. When NuPathe went public, for instance, previous owners offered to buy 26% of the newly created shares to keep the company headed toward its next value-adding event.

Even with existing shareholder participation, biotechs haven't been able to get the prices they'd like for their IPOs. NuPathe was shooting for an IPO in the $14 to $16 range but ended up pricing for $10 per share. Ditto for Endocyte, which saw a haircut from a range of $13 to $15 per share down to just $6 per share.

With that kind of blah IPO market, can we really blame Synageva BioPharma for backdooring into the public markets through a reverse merger with Trimeris?

Synageva has one drug in development, SBC-102, which treats an orphan disease, but it needs cash to continue development and become the next orphan-drug specialist like BioMarin Pharmaceutical (Nasdaq: BMRN) or Protalix BioTherapeutics (AMEX: PLX).

In the deal, Trimeris offers up $47 million in cash and a small revenue stream from royalties on Roche's Fuzeon. Synageva's shareholders will only be 75% owners in the new company, but they would have given up a substantial fraction of ownership in a front-door IPO as well. The new minority owners are just Trimeris' investors instead of IPO buyers.

Access first, cash second
Allozyne's reverse merger with Poniard Pharmaceuticals doesn't offer the same kind of cash reserves -- one of its shareholders is loaning Poniard $2.4 million to get it to closing. But Poniard does have a phase-3-ready chemotherapeutic agent picoplatin that Allozyne can sell off to help fund its early stage pipeline. AZ01, the only one in the clinic, is a long-acting form of interferon beta, the same base molecule as multiple sclerosis drugs Biogen Idec's Avonex, Bayer's Betaseron, and Rebif, which is sold by Merck KGaA and Pfizer (NYSE: PFE).

The public listing on the Nasdaq also gives Allozyme the option of selling additional shares through secondary offerings, although I don't know how much additional capital raises will be necessary. Allozyme has two platforms that can be used to develop multiple drugs. One platform, for instance, can be used to create antibody drug conjugates, or ADCs. Both Seattle Genetics (Nasdaq: SGEN) and ImmunoGen (Nasdaq: IMGN) have been very successful raising funds by out-licensing their ADC technologies to other companies.

Look, but don't touch
In theory, you could buy shares of Trimeris or Poniard right now to gain access to Syngeva and Allozne after closing, but you're likely better off waiting. The amount of information available about private companies' pipelines is limited. While both companies' technologies sound interesting, I'd suggest waiting until the transactions go through and they file a couple of SEC disclosures and hold a conference call or two.

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