UPDATED: In a surprise move, Flagship's Valo Health and Khosla Ventures SPAC call off merger
By most accounts, the biotech sector has boomed throughout the Covid-19 pandemic, particularly for companies looking to go public through a traditional IPO or the ever-more-popular SPAC route. But as one Flagship biotech found out, some of the luster might be wearing off.
Valo Health and its SPAC partner, the first of Khosla Ventures’ three blank check companies, called off their merger late Monday in a statement citing only the vague “current market conditions” as the reason. The termination came just one day before a shareholder meeting where a vote on the merger was expected.
According to prepared statements from both sides, the decision was made amicably. Khosla managing director Samir Kaul described Valo as a “strong company” and wished it future success, while Valo CEO David Berry noted the company remains in an “optimal position of strength.”
The Khosla SPAC was the first of three launched by prominent biotech investor Vinod Khosla, who set up the trio of blank check companies in February. Trading under the ticker $KVSA, it will continue to seek out business partners before the two-year deadline expires.
Combined, the SPACs had raised more than $1.2 billion, with the vehicles containing trusts of roughly $300 million, $400 million and $500 million, respectively. The second SPAC merged with social networking service Nextdoor, debuting on the New York Stock Exchange last week, while the third blank check company is yet to find a companion.
Valo’s merger had been expected with the $300 million outfit, though by the time the sides announced the deal in June the trust had grown to $333 million. Expected to close this quarter, the agreement would have seen Valo net an additional PIPE financing of more than $200 million, following new investments last week, and a $2.8 billion valuation.
Monday’s move blunts the biotech’s momentum following what had been a quick rise. Flagship unveiled the company back in September 2020, making a bet that marrying artificial intelligence with cloud computing — in a bid to analyze massive amounts of human data — would prove the next frontier in drug development.
Berry told Endpoints News in a previous interview he originally set out to pursue a traditional IPO for Valo, but changed course due to Khosla’s reputation and his 20-year professional relationship with Kaul. In an email Wednesday morning, Valo spokesperson Jennifer Hanley told Endpoints Valo now plans to go after an IPO, but there’s no word yet on timing.
The company had previously secured a $100 million Series A and a $300 million extended Series B prior to June’s SPAC announcement.
SPACs had proven extremely popular investment tools in late 2020 and early 2021, with the market raising more than $300 billion in the first quarter across all sectors. Following a spring slowdown after the SEC hinted it may crack down, activity ramped back up over the summer.
This article has been updated to include comment from Valo spokesperson Jennifer Hanley.