Four months ago, Coronado Biosciences Inc. embarked on a route to going public not often seen in the biotech industry: the Form 10 pathway. (See BioWorld Today, July 20, 2011.)

In essence, the Form 10 pathway offers an alternative to the initial public offering (IPO) or reverse merger, seeking to avoid the market volatility and high transaction costs of the former as well as the trading restrictions and investor baggage of the latter. A private firm looking to use the pathway to go public simply files a Form 10 with the SEC to become a public reporting company, files an S-1 to register its shares, and applies to trade those shares on a market. (See BioWorld Insight, July 25, 2011.)

Coronado got started down the Form 10 road because such filings are required for private companies with 500 or more stockholders of record. The rule most often affects large private tech firms like Facebook, but Coronado's angel-backed business model made it one of the rare few private biotechs to hit the stockholder threshold. Although a bill is pending in the House that may raise that threshold, under current law, Coronado had to become a reporting company.

Coronado did not, however, have to start publicly trading its shares – but the company was interested in accessing the public markets. President and CEO Bobby Sandage said Coronado had considered a reverse merger and even went as far as to identify a suitable shell company to merge into, but new restrictions from the SEC made that option less appealing. Meanwhile, although five biotechs have jumped into the IPO queue in the last few months, the window remains far from what most would consider open. (See BioWorld Today, Nov. 11, 2011.)

Hence Coronado opted for the Form 10 route. Sandage said the process is not well understood and "even with experienced SEC lawyers we were sort of figuring things out as we went along," but he believes it was the right decision and would do it again with future start-ups.

Coronado debuted on the OTCQB last month at $11 per share. That price was market-driven, determined not by a team of investment bankers negotiating with institutional investors, but simply by what a buyer was willing to pay and a seller was willing to accept. Interestingly, Coronado's price was higher than that of three-quarters of the biotechs to price IPOs this year, even though the Burlington, Mass.-based firm is barely in the clinic.

Since its pricing, however, Coronado's shares (OTCQB:CNDO) have dropped 34 percent to $7.25, as of mid last week. That's not necessarily unusual for a newly public biotech – several members of this year's IPO class have fallen just as hard, although as a group they are down about 8 percent. The drop does, however, illustrate some of the challenges of taking the Form 10 route.

Unlike in an IPO, Coronado didn't have investment bankers trotting management around to meet with institutional investors and raise awareness. "With Form 10, you essentially have to do it yourself," Sandage explained, adding that he and chief operating officer Noah Beerman have been "on the road nonstop" talking to investors and analysts, trying to get the word out.

For now, trading volume among Coronado's largely retail base is low, but Sandage isn't overly concerned, noting that "IPOs don't trade that much after the first week or two either." And although Coronado's price has fallen, Sandage is encouraged by the fact that the firm was recently picked up by Roth Capital Partners with a buy rating and a $27 price target. He's also optimistic that more analyst coverage and interest from institutional investors will come once the firm transfers to Nasdaq, a process that is already underway.

Beerman also believes Coronado's stock price will benefit from the achievement of some near-term milestones. The company recently filed an investigational new drug application for lead program CNDO-201, pig whipworm eggs, and a Phase I trial is underway. Safety data are expected in the first quarter of 2012, and a Phase II trial for Chron's disease is expected to start in the second quarter. Meanwhile Coronado's second program, which involves ex-vivo activation of NK cells, is poised to start a Phase I/II trial in acute myeloid leukemia early next year.

It remains to be seen whether or not other biotechs follow in Coronado's footsteps and use the Form 10 pathway to go public. They may soon have yet another IPO alternative: a bill that has passed the House and is now in the Senate would raise the Regulation A exemption to $50 million, providing privately held biotechs with the opportunity to raise money and start trading their shares without filing a Form 10 to become a public reporting company. (See BioWorld Insight, Nov. 21, 2011.)