Billions of dollars worth of SPACs are riding on the biotech IPO boom
Billionaire hedge fund manager Bill Ackman’s push to raise $4 billion for his blank check company, Pershing Square Tontine Holdings, is casting a spotlight on the SPACs. And amid a historic SPAC boom, biotechs are setting several records on what some observers say is shaping up to be a third major track — besides IPO and M&A — to go public.
“SPACs were approximately 3% of the IPO market back in 2014, now they are almost 35% of all new listings,” Jay Heller, the Nasdaq’s head of capital markets, told Endpoints News.
Even though biopharma appears largely unscathed by the volatility in the broader public market, seeing instead a historic run of debuts, SPACs have still emerged as an alternative vehicle that can offset some risks.
Established more than three decades ago, SPACs, or special purpose acquisition companies, are essentially cleaner reverse merger shells for private companies looking to make a quick flip to the public market. The way it works: An investment firm would create a corporation and file for an IPO based on nothing but its reputation for picking out winner opportunities — and the team has two years to do so after raising the capital, solely reserved for buying out an existing company.
While it’s had a checkered past tied with fraudulent outfits, blue chip sponsors from RTW Investments to Perceptive Advisors are increasingly setting up their own SPACs.
For both investors and companies (as well as their original backers), it saves time and trouble negotiating terms or setting a price — although existing shareholders do have the right to vote down a merger last minute.
“We predicted at least six biotech focused SPACs this year and we are almost there,” said Jonas Grossman, the president of Chardan.
Chardan raised $70 million to create its own SPAC, Chardan Healthcare Acquisition, back in 2018. It then zeroed in on BiomX, an Israeli microbiome-focused biotech, as a merger target, bringing the first and only biotech SPAC combination of 2019.
Since then, RTW’s Health Sciences has combined with Immunovant, Perceptive’s Arya Sciences has merged with Immatics, EcoR1’s Panacea has priced its $125 million IPO, and LifeSci Acquisition Corp has raised $60 million. Chardan itself has pooled $85 million for a second SPAC.
Last week, Therapeutics Acquisitions — a SPAC sponsored by RA Capital — marked another first by an IPO by selling $118 million worth of common shares rather than units. Practically, it means that the offering didn’t include any tradable warrants, which used to be a fixture in such public listings.
The company had initially structured the IPO based on units, Heller of Nasdaq noted, consisting of one share of Class A common stock and one-third of one redeemable warrant.
“They were probably able to restructure the deal because of strong investor demand,” he wrote. “The aftermarket trading of this security will be a test to see if this will be adopted by future SPACs.”