In­side Track: Be­hind the Scenes of a Ma­jor Biotech SPAC

Dr. David Hung and Michelle Doig are no strangers to the SPAC phe­nom­e­non. As Founder and CEO of Nu­va­tion Bio, a biotech com­pa­ny tack­ling some of the great­est un­met needs in on­col­o­gy, Dr. Hung re­cent­ly took the com­pa­ny pub­lic in one of this year’s biggest SPAC re­lat­ed deals. And as Part­ner at Omega Funds, Doig not on­ly led and syn­di­cat­ed Nu­va­tion Bio’s Se­ries A, but is now al­so Pres­i­dent of the new­ly formed, Omega-spon­sored, Omega Al­pha SPAC (Nas­daq: OMEG; over­sub­scribed $138m IPO priced Jan­u­ary 6, 2021).

Be­fore tak­ing Nu­va­tion Bio pub­lic, Dr. Hung’s pre­vi­ous com­pa­ny, Medi­va­tion, went pub­lic via de-SPAC merg­er in 2003. What is it about SPACs that was com­pelling enough to do it not on­ly once, but twice?

“When Medi­va­tion went pub­lic 17 years ago, SPACs didn’t have the lus­ter they have to­day,” ex­plains Dr. Hung. “They were of­ten the fi­nanc­ing route for com­pa­nies that were mar­gin­al or dis­tressed. It was an un­usu­al way to go pub­lic back then, but Medi­va­tion end­ed up be­ing one of the most suc­cess­ful health­care SPACs ever. We raised $12 mil­lion in our first fi­nanc­ing and, over the next 13 years, $440 mil­lion to yield a mar­ket cap of $14.3 bil­lion. So, it was an easy de­ci­sion to go pub­lic through an­oth­er SPAC with Nu­va­tion Bio.”

Ear­ly last year, pri­or to the SPAC, Nu­va­tion Bio se­cured a strik­ing $275 mil­lion Se­ries A round, led by Doig at Omega Funds. At the time, Dr. Hung wasn’t think­ing about fur­ther fi­nanc­ing. But when the un­cer­tain­ty of the pan­dem­ic hit, he re­al­ized he want­ed to en­sure fu­ture fund­ing fast. “We had al­so made tremen­dous progress with mul­ti­ple pro­grams head­ing to the clin­ic faster than we an­tic­i­pat­ed,” ex­plains Dr. Hung. “So we need­ed cap­i­tal.”

Find­ing the right SPAC spon­sor

It wasn’t dif­fi­cult for Dr. Hung to as­sure his in­vestors that us­ing a SPAC to cap­i­tal­ize those pro­grams would be a smart move. He al­so had a long-stand­ing re­la­tion­ship with Oleg Nodel­man and Scott Plat­shon of EcoR1 who had spon­sored their own SPAC, Panacea, which had all the at­trib­ut­es Dr. Hung was look­ing for in a spon­sor.

“I’ve known Oleg and Scott for over a decade. The syn­di­cate in the SPAC was re­al­ly top-notch. Panacea al­so had $144 mil­lion in cash, so was on the high­er end of the SPACs we looked at. So we were con­fi­dent we would raise the $500 mil­lion we end­ed up rais­ing for a to­tal of $644 mil­lion in the PIPE, with the SPAC com­bo that closed last year.”

The SPAC spon­sor per­spec­tive

For his part, Nodel­man said that when he set up Panacea, his plan was to part­ner with a com­pa­ny that had an ex­cep­tion­al man­age­ment team, a deep pipeline, and a plat­form tech­nol­o­gy that could en­able suc­cess to be repli­cat­ed. That’s what he found with Nu­va­tion Bio. Ac­cord­ing to Michelle Doig, that cri­te­ria is a use­ful check­list for any pri­vate com­pa­ny look­ing to gauge their own po­ten­tial to be a tar­get for a SPAC deal.

“First­ly, you need a strong man­age­ment team that’s ready for prime­time,” says Doig. “Sec­ond­ly, a plat­form and/or pipeline of prod­ucts dri­ven by nov­el sci­ence to ad­dress se­vere un­met needs. And last­ly, mul­ti­ple up­com­ing val­ue in­flec­tion points in news­flow post-trans­ac­tion.”

As a lead­ing life sci­ences ven­ture cap­i­tal firm, Omega Funds has been a fre­quent backer of IPO-bound biotechs. Strate­gi­cal­ly, what’s dri­ven the de­ci­sion to cre­ate Omega Al­pha SPAC?

“We want­ed to of­fer the full spec­trum of cap­i­tal-rais­ing op­tion­al­i­ty,” says Doig. “We can now trans­act across the full in­vest­ment spec­trum, from seed and com­pa­ny cre­ation through ven­ture cap­i­tal, IPO, SPAC plus PIPE, struc­tured PIPEs and sec­on­daries.”

“There are al­so key dif­fer­en­tia­tors in our SPAC that will help us at­tract high-qual­i­ty tar­gets. We have boots on the ground across the US and West­ern Eu­rope. We have an ac­com­plished man­age­ment team and an ex­cep­tion­al Board of Di­rec­tors, made up of in­dus­try lead­ers from all stages of drug dis­cov­ery and de­vel­op­ment. And we have a clean struc­ture. Omega Fund Six is our spon­sor, we do not have any war­rants and we have a cu­rat­ed in­vestor base who are in­ter­est­ed in par­tic­i­pat­ing in a con­cur­rent PIPE.”

SPAC ver­sus tra­di­tion­al IPO

When is a SPAC the right op­tion for a pri­vate com­pa­ny look­ing to go pub­lic and why choose a SPAC ver­sus an IPO? For Doig, the short an­swer is time and mon­ey.

“By merg­ing with a SPAC and rais­ing a con­cur­rent PIPE, you can ef­fec­tive­ly com­press a crossover round and an IPO, and/or even a first fol­low-on of­fer­ing, in­to one trans­ac­tion and raise a larg­er quan­tum of cap­i­tal all at once,” ex­plains Doig. “With a SPAC, you ne­go­ti­ate the val­u­a­tion up front, so you’re pro­tect­ing your­self from mar­ket volatil­i­ty.”

For Dr. Hung, the speed of the SPAC process has an­oth­er ben­e­fit. “Our high­est pri­or­i­ty is to de­vel­op the best drugs we can as fast as pos­si­ble,” says Dr. Hung. “Every minute we’re not spend­ing on fi­nanc­ing that we can spend get­ting drugs to pa­tients soon­er is a huge pri­or­i­ty for us.”

The ben­e­fits are clear, but does Doig see any risks to choos­ing the SPAC route? “I think there are some risks. The Nu­va­tion Bio merg­er went so well be­cause of a stel­lar man­age­ment team, an ex­ist­ing Se­ries A syn­di­cate to an­chor the PIPE and a high-qual­i­ty spon­sor. Pri­vate com­pa­nies do need to be aware that not all spon­sors are cre­at­ed equal. They need to con­sid­er the SPAC cap­i­tal struc­tures and spon­sors care­ful­ly, es­pe­cial­ly if there are war­rants in­volved.”

Are there any oth­er down­sides com­pa­nies should be aware of be­fore choos­ing the SPAC route? “I don’t think there are a lot of down­sides,” says Dr. Hung. “I would tell any com­pa­ny that’s look­ing to do a SPAC to make sure that it meets their needs, it has enough cap­i­tal, that they can lock in a large enough PIPE for their fi­nanc­ing needs, and that they’re work­ing with a high-qual­i­ty team they trust.”

Will the SPAC bub­ble burst?

So, are SPACs here to stay as an al­ter­na­tive to IPO? Could they go so far as to make the tra­di­tion­al IPO ob­so­lete?

“I be­lieve SPACs are here to stay,” con­cludes Dr. Hung. “Not on­ly are SPACs an al­ter­na­tive to tra­di­tion­al IPOs, I think they’re now a pre­mi­um op­tion for many com­pa­nies. I’m not sure IPOs will be­come ob­so­lete, but I do think we’ll see more and more com­pa­nies elect to go the SPAC route.”

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Noël Brown

Managing Director and Head, US Biotechnology Investment Banking