Biotech Investors Rolling the Dice with 250% SPAC Surge
Emerging biotech companies have been finding creative ways to explode onto the stock exchange during the COVID-19 pandemic. One of these is through special purpose acquisition companies (SPAC) mergers and acquisitions, which allow a desired company to go public more quickly and with less risk with than with the traditional Initial Public Offering (IPO).
Once the domain of the tech industry, agreements with SPACs, also called “blank check” companies, have soared to the tune of 250% over 2019. A SPAC is a company that raises capital through an IPO with the lone intent of buying or merging with another company. According to Life Sci VC:
“Nearly two dozen SPACs have been raised or announced in 2020 through mid-October, targeting more than $3.5B in proceeds; for context, in 2019 traditional biotech IPOs raised ~$4B in new offerings over the course of the entire year.”
Companies snapped up in this SPAC explosion include Gemini Therapeutics, acquired last month by Foresite Capital blank check company FS Development, Cerevel Therapeutics, and CannBioRx Life Sciences Corp (now 180 Life Sciences), picked up by KBL Merger Corp.
Cerevel, a Pfizer spinoff dedicated to unraveling the mysteries of the brain to solve neuroscience diseases, entered into a business combination deal with Arya Sciences Acquisition Corp II, a SPAC sponsored by Perceptive Advisors at the end of July. Cerevel began trading on the Nasdaq on October 28th.
“At Cerevel, we seek to become the premier neuroscience company by leveraging our deep expertise and understanding of neurocircuitry with our focus on receptor selectivity,” said Tony Coles, chairman and chief executive officer of Cerevel. “I want to thank our investors, our employees, our founders at Bain Capital and Pfizer and our board for making this transaction a success and ensuring that we have resources necessary to develop our extensive pipeline.
There are many benefits to going the SPAC route for the target biotech. Already secured funds mean a lower risk-threshold and a faster, simpler process. In a SPAC deal, the investor shoulders the lion’s share of the risk because the disclosure standards common to the IPO do not apply here. The lower risk is particularly attractive to venture-backed biotech companies in the uncertain COVID-19 economy.
It is largely a win-win scenario, however, as the SPAC secures its place on the exchange.
“A lot of the investor universe saw that this was a great opportunity; add on the disruption that Covid caused to the traditional IPO process and SPACs became very interesting. It really highlighted some of the advantages that they bring,” Jonas Grossman, Partner and President of Chardan Investment Bank, told GlobalData Healthcare.
This disruption to the IPO was certainly not fatal, however. It is quite the opposite, in fact, as biotech companies continue to cash in on the immense interest caused by the industry’s response to COVID-19. As of October 1st, there had been $4.5 billion in IPOs carried out, which comes close to the entire 2019 total of $5 billion across 51 public offerings of North American-based biotechs.