Investors are rediscovering the special purpose acquisition company (SPAC), a publicly traded shell firm that attracts investors to go out and buy private firms. Biotechs that seek to go public are discovering them as an alternative to an initial public offering for the obvious reasons that the process can move much faster. SPAC’s in biotech may become a more common third approach to public liquidity events, including IPO and M&A. Thus far this year, over 80 SPACS have completed IPOs, raising over $33 billion. SPACs represent a way for investors to invest in biotech’s earlier on.
SPACs were established decades ago as a cleaner form of a reverse merger shell for a private company looking for a way to make a quick move to become a public company. Essentially, an investment firm establishes a corporation and files for an IPO solely on the reputation of its principals for picking winners in biotech. The team then has a couple of years to prove what they’re made of once they raise the capital: again they must only use the funds raised for acquiring an existing company.
SPACs in Biotech
Back in July, Endpoints News’ editor Amber Tong wrote that according to Jay Heller, Nasdaq head of capital markets, “SPACS were approximately 3% of the IPO market back in 2014, now they are almost 35% of all new listings.”
Example Data Points
Endpoints News’ Ms. Tong reported on Chardan, which raised $70 million to form its own SPAC called Chardan Healthcare Acquisition in 2018. Its first purchase: BiomX, an Israeli microbiome-focused biotech as a target ushering in the first and only biotech only biotech SPAC combination by 2019.
Ms. Tong informed RTW’s Health Sciences combined with Immunovant, Perceptive’s Arya Sciences merged with Immatics while EcoR1’s Panacea priced an IPO for $125 million and LifeSci Acquisition Corp raised $60 million. Chardan raised $85 million for a second SPAC.
Hedge fund manager Bill Ackman was working to raise up to $4 billion for Tontine Holdings as a SPAC.
Recently, Luis Sanchez of Motley Fool reported on more SPAC activity in biotech, such as FS Development (NASDAQ:FSDC) backed by Dr. Jim Tananbaum, an investor and entrepreneur with a proven track record. Mr. Tananbaum brings considerable background to the table founding Foresite Capital back in 2011. Tananbaum first got started with founding GelTex Pharmaceuticals (acquired in 1999) and Theravance (split into Innoviva and Theravance Biopharma)—both combined a market capitalization of $2.5 billion.