Finance Watch: SPAC Spree To Continue ‘For Foreseeable Future’

Public Company Edition: Merging with a special purpose acquisition corporation may be an attractive alternative to an initial public offering, but February’s vigorous IPO pace includes seven recent offerings that raised $480.8m in the US. Also, Cassava raised $200m and KalVista brought in $222.5m.

A panel of drug developers, investors and advisors discussed the merits of going public in the US through an initial public offering or through a merger with a special purpose acquisition corporation (SPAC) during the recent BIO CEO & Investor Digital Conference and noted that the speed of a SPAC transaction is a definite advantage.

SPACs are shell companies that raise capital in an IPO with the singular purpose of acquiring or merging with another company, usually in a specific industry, giving the target company another route to the US stock market besides an IPO. Panelists participating in the 16 February SPAC panel at BIO CEO & Investor agreed that SPAC mergers remain a viable route to a NASDAQ listing, even while biopharma firms continue to go public and generate high returns for IPO investors, “for the foreseeable future.”

A few dozen SPACs targeting biopharma and related sectors went public in the US during 2020 and the first two months of 2021, including FS Development Corp. II, the second SPAC sponsored by Foresite Capital. The new SPAC went public on 16 February with the sale of 17.5 million shares at $10 each to gross $175m. This follows Foresite’s success with its first SPAC, FS Development Corp., which announced in October that it would merge with Gemini Therapeutics Inc.

SPAC mergers often close with a concurrent private placement or private investment in public equity (PIPE) financing, which is what will happen in the case of Gemini, which plans to raise $95m from PIPE investors. (Also see "Finance Watch: Have Investors Reached IPO Fatigue?" - Scrip, 19 Oct, 2020.)

Attorney Amanda Rose warned that while a SPAC merger can happen more quickly than an IPO, biotech companies often do not have audited financials needed to support the rapid pace of a SPAC transaction and to entice investors that may fund a concurrent PIPE.

BIO CEO & Investor panelist Ahmed Hamdy, CEO of Vincerx Pharma Inc. (previously Vincera Pharma Inc.), completed a merger with the SPAC known as LifeSci Acquisition Corp. in December after the cancer drug developer acquired a clinical-stage small molecule and follow-on drug candidate as well as a preclinical bioconjugation and next-generation antibody-drug conjugate platform from Bayer AG in October. (Also see "Deal Watch: Private Equity-Backed Covis Bids To Buy Troubled AMAG" - Scrip, 2 Oct, 2020.)

“In our case the SPAC was much easier than a public offering and better than the [venture capital] route,” Hamdy said. “We had a big pipeline and needed to get deals with big pharma happening quickly, so the SPAC was the path that was more desirable for us and I would recommend it in the future for biotech entrepreneurs.”

Hamdy as well as Jonas Grossman, partner and president of the investment bank Chardan, and Blue Water Vaccines, Inc. CEO Joseph Hernandez all said that a SPAC merger can be significantly faster than the typical IPO process, which includes a costly series of meetings and presentations to court potential investors. Chardan has taken multiple SPACs public as part of its life science investment strategy. Separately from his company developing a universal flu vaccine, Hernandez is the CEO of a SPAC known as Blue Water Acquisition Corp., which raised $57.5m in its December IPO. (Also see "Finance Watch: BioAtla, Virios And Scopus Launch Latest US IPOs" - Scrip, 22 Dec, 2020.)

“The IPO market for biotech continues to be robust [and] there has been some great performance from great companies, but there's also now sort of a growing group of high-quality [SPAC] sponsors looking for opportunities in biotech,” Grossman said. “There have been some high-quality deals in the biotech space to date, so I think if that continues my prediction is you'll start to see more health tech, medtech sort of offshoots in the health care space.”

At this point, SPACs are an investment vehicle that many investors ought to consider going forward, whether they specialize in private or public company investments, he said.

“I think it's going to continue to be an important aspect of the public markets,” Hernandez said, but he noted that SPACs going forward should be on the smaller side versus some in recent months that have raised $200m to $300m in their IPOs. “I think there's a lot of really large SPACs looking for elephants and there's not a whole lot of elephants out there, so I think you'll see the spectrum shift a little bit.”

Fenwick & West LLP partner Amanda Rose, a lawyer who has advised many clients in SPAC mergers and other financings, said she is less bullish about SPACs in 2021. Rose warned that while a SPAC merger can happen more quickly than an IPO, biotech companies often do not have audited financials needed to support the rapid pace of a SPAC transaction and to entice investors that may fund a concurrent PIPE.

While “there are SPACs that can bring along a lot of value and result in really great transactions” at the same time “there are some companies that aren't really ready to be public [and] some SPACs that might not be the best partner for specific companies,” she said.

“I think it's important as a private company to really drill down into the economic solution and look at that versus the IPO in considering which path is right for you,” Rose advised. “If the IPO market stays as strong as it is for a lot of companies, that's maybe a quicker, easier, less difficult process than a SPAC, but I think SPAC transactions are here to stay for the foreseeable future.”

Now that SPACs have managed to launch so many IPOs, there are a lot that are looking to merge with biopharma companies. The bioengineered tissue company Humacyte, Inc. revealed on 17 February that it will go public through a merger with a SPAC known as Alpha Healthcare Acquisition Corp. (AHAC). Humacyte will execute a concurrent PIPE that will raise about $175m, which will be combined with about $100m held in trust by AHAC.

Humacyte is developing off-the-shelf, universally implantable, bioengineered human tissues. The company received the first-ever Regenerative Medicine Advanced Therapy (RMAT) designation from the US Food and Drug Administration in 2017 for a bioengineered blood vessel product in development for patients receiving hemodialysis for end-stage renal disease. (Also see "Regenerative Medicine Comes Of Age – In The Age Of COVID-19" - Pink Sheet, 1 Dec, 2020.)

Seven More IPOs Bring In $480.8m

Six more biopharmaceutical companies went public in the US during the second week of February, followed by Virpax Pharmaceuticals, Inc. on 16 February, bringing the month’s total to 17 initial public offerings after just three in January.

The difference between the first and second weeks of February, besides the number of IPOs, was the size of the offerings. The six companies that went public between 8 and 12 February raised $462.8m, or $77.1m on average, while the average amount raised per offering by the 10 drug developers that went public during the first week of February was $188.9m.

Sana Biotechnology, Inc. – the company with the biggest biopharma IPO so far this year and one of the industry’s largest to date – grossed $587.5m in its 3 February IPO, but the engineered cell therapy company’s haul rose to $675.6m with the sale of all shares set aside for overallotments when it closed the offering on 8 February. That is more money in a single IPO than raised by the seven companies that went public between 9 and 16 February.

Among the latest first-time offerings in the US:

• Suzhou, China-based Adagene Inc. grossed $140m on 9 February from the sale of 7.3 million American depository shares (ADSs) at $19 per ADS. The offering closed on 11 February with the sale of another 1.1 million shares, bringing the company’s gross proceeds to $161m to fund its pipeline of antibody-based immunotherapies.

• Decibel Therapeutics, Inc. raised $127.1m to fund its development of genetic medicines that restore and improve hearing and balance. The Boston-based company sold 7.1 million shares at $18 each on 11 February.

• NexImmune, Inc. in Gaithersburg, MD grossed $110m on 11 February from the sale of 6.5 million shares at $17 each to fund its immunotherapy programs, which are designed to engage the body’s own T-cells to generate specific, potent and durable immune responses.

• To fund its cell therapies for aging-related diseases, Miami-based Longeveron, Inc. raised $26.6m from the 11 February sale of 2.66 million shares at $10 each. (Also see "Private Longeveron Bets On Stem Cells For Inflammation, Aging Diseases" - Scrip, 14 Aug, 2018.)

• Paris-based Biophytis SA, which is also focused on age-related diseases and has an office in Cambridge, MA, sold 1.2 million ADSs for $16.75 each to gross $20.1m on 10 February. Each ADS represented 10 ordinary shares for a total of 12 million.

• Vallon Pharmaceuticals Inc. grossed $18m on 9 February from the sale of 2.25 million shares at $8 each. The Philadelphia-based company is developing drugs designed to deter abuse in the treatment of central nervous system disorders. Lead drug candidate ADAIR is an abuse-deterrent formulation of immediate-release amphetamine for attention deficit hyperactivity disorder (ADHD) and narcolepsy.

• Virpax Pharmaceuticals in West Chester, PA grossed $18m from the sale of 1.8 million shares at $10 each, at the low end of a proposed $10 to $12 range but with 400,000 more shares. The preclinical company will use the proceeds to advance its preclinical novel formulations of non-opioid and non-addictive pain therapies, including a diclofenac spray for osteoarthritis of the knee. (Also see "Virpax And MedPharm Advance Diclofenac Spray" - Generics Bulletin, 21 May, 2020.)

Nektar Finances Trial Via Capital, Collaboration With SFJ

Nektar Therapeutics revealed a financial and co-development agreement with SFJ Pharmaceuticals, Inc. on 17 February to fund its latest pivotal trial for the CD122-preferential interleukin-2 (IL-2) pathway antagonist bempegaldesleukin (bempeg; NKTR-214). The Phase II/III trial starting in the second half of 2021 will test bempeg in combination with Merck & Co., Inc.’s PD-1 inhibitor Keytruda (pembrolizumab) in the first-line treatment of PD-L1-expressing squamous cell carcinoma of the head and neck (SCCHN).

San Francisco-based Nektar will receive up to $150m from SFJ, which also will provide clinical trial management support, to fund the new trial. The company will repay the financing over seven to eight year via milestone payments tied to regulatory approvals for certain bempeg indications, with payments starting after completion of the SCCHN study, which is projected for 2024.

The investment firm Abingworth, which backs SFJ along with Blackstone Life Sciences, noted recently that it set aside 20% of its newly raised $465m venture capital fund for co-development agreements like the deal between Nektar and SFJ. (Also see "Abingworth Raises $465m To Back And Build New Biotechs" - Scrip, 3 Feb, 2021.)

The agreement gives Nektar funding that is non-dilutive to its shareholders to fund a study outside of its long-standing collaboration with Bristol Myers Squibb Company. Several studies are under way testing bempeg in combination with the BMS PD-1 inhibitor Opdivo (nivolumab) in melanoma, renal cell carcinoma and bladder cancer. (Also see "Nektar/Bristol Deal May Shake Up Immuno-Oncology Landscape" - Scrip, 14 Feb, 2018.)

The agreement, which gives Nektar 65% and BMS 35% of profits from bempeg, allows for testing the IL-2 inhibitor with other drugs, such as the ongoing PROPEL study of bempeg in combination with Keytruda in first-line metastatic non-small cell lung cancer. Data for bempeg plus Opdivo to date have been promising, but mixed. (Also see "A Plea For Patience: Bristol/Nektar's Opdivo/NKTR-214 Combo Responses Deepen Over Time" - Scrip, 3 Jun, 2018.)

Cassava Leads Recent Public Company Financings

Among already public companies, Cassava Sciences, Inc. brought in $200m through the sale of 4.1 million shares at $49 each in a registered direct offering to several health care-focused and institutional investors. The offering was announced on 10 February and closed two days later.

UK Company Financings

Scrip recently highlighted UK-based firms that have benefited from the ongoing biopharma funding boom, including the public companies Mereo BioPharma Group plc and Autolus Therapeutics plc. (Also see "UK Firms Big And Small Benefit From Biotech Bubble" - Scrip, 12 Feb, 2021.)

Austin, TX-based Cassava saw its stock price more than double to $55.44 on 2 February when it reported interim data from an open-label study of lead drug candidate simufilam (PTI-125) in which Alzheimer’s disease patients showed improvements in cognition and behavior. (Also see "Cassava Starts Second Alzheimer's Study After PT-125 Effects Multiple Biomarkers" - Scrip, 9 Sep, 2019.) The company said on 8 February that it has expanded enrollment in the Phase II study and it will begin a Phase III program in the treatment of Alzheimer’s disease dementia in the second half of 2021. (Also see "Pipeline Watch: Phase III Starts In Psoriasis, Menopause, And COVID-19 Prevention" - Scrip, 9 Feb, 2021.)

Alzheimer’s disease therapeutics have gained increased interest from investors as Biogen, Inc.’s aducanumab has advanced toward approval, although the company said in January that the US Food and Drug Administration has extended its review of the amyloid-targeting antibody’s biologic license application by three months to 7 June. (Also see "Aducanumab Approval Decision Delayed: Could This Be Good News?" - Scrip, 29 Jan, 2021.)

Eli Lilly and Company also caused excitement in the Alzheimer’s space in early 2021 when the company said its next-generation anti-amyloid antibody donanemab slowed cognitive and functional decline among Alzheimer’s patients in a Phase II clinical trial. (Also see "Lilly Sees Positive Results With Next-Gen Alzheimer’s Drug Donanemab" - Scrip, 11 Jan, 2021.)

In other recent public company financings:

• Cambridge, MA-based KalVista Pharmaceuticals, Inc. followed its announcement of positive Phase II results for KVD900 in the treatment of hereditary angioedema (HAE) attacks with the sale of 6.2 million shares at $36 each to gross $222.5m when the offering closed on 16 February. Planning for a Phase III program is well under way.

• Travere Therapeutics, Inc. in San Diego, formerly known as Retrophin Inc., grossed $201.5m from the sale of 7.5 million shares at $26.75 each; the offering closed on 17 February. Travere announced positive interim results on 2 February for sparsentan, its dual-acting antagonist of the endothelin type A and angiotensin II type 1 receptors, in the ongoing pivotal Phase III DUPLEX trial in focal segmental glomerulosclerosis (FSGS). (Also see "Retrophin's Focus Shifts After Phase III PKAN Drug's Failure" - Scrip, 22 Aug, 2019.) Patients treated with the drug achieved FSGS partial remission of proteinuria endpoint (FPRE) after 36 weeks of treatment. (Also see "Pipeline Watch: Phase III Starts In Psoriasis, Menopause, And COVID-19 Prevention" - Scrip, 9 Feb, 2021.)

• London-based gene therapy developer Orchard Therapeutics Limited raised $150m from the sale of 24.1 million shares at $6.22 each through a private investment in public equity (PIPE) financing announced on 5 February. Existing and new investors participated in the PIPE, including RA Capital Management, Avidity Partners, Casdin Capital, Farallon Capital, Surveyor Capital (a Citadel company) and others. The funding plus existing cash will fund Orchard’s operations into the first half of 2023, including the launch of newly approved Libmeldy (OTL-200) in Europe for the treatment of metachromatic leukodystrophy (MLD) and expansion of its hematopoietic stem cell (HSC) gene therapy approach into larger indications. (Also see "Approval Beckons For Orchard’s Gene Therapy Libmeldy" - Scrip, 19 Oct, 2020.)

• Adicet Bio Inc. in Menlo Park, CA priced a follow-on public offering (FOPO) of 9.2 million shares at $13 each on 10 February to gross $120m and entered into a separate agreement with certain existing investors to raise another $15m through a private placement. The offering closed on 16 February with the sale of 10.6m shares to gross $137.5m. The combined $152.5m in proceeds from the FOPO and private placement will fund ongoing of Adicet’s allogeneic gamma delta T-cell therapies for cancer and other diseases. The company went public in a reverse merger with resTORbio Inc. last year. (Also see "Deal Watch: Menarini Enters US Oncology Market Via Merger With Stemline" - Scrip, 4 May, 2020.)

• Edison, NJ-based Hepion Pharmaceuticals, Inc. grossed $88.4m from the 16 February sale of 44.2 million shares at $2 each to fund its development of treatments for liver disease arising from non-alcoholic steatohepatitis (NASH). Lead drug candidate CRV431, an inhibitor of cyclophilins, has been shown to reduce liver fibrosis and hepatocellular carcinoma tumor burden in preclinical models of NASH and is being evaluated in NASH patients in a Phase IIa program; the company recently reported positive top-line results from the Phase IIa AMBITION study. (Also see "Pipeline Watch: COVID-19 Vaccine Approvals, Late-Stage Readouts" - Scrip, 5 Jan, 2021.) Hepion is using its artificial intelligence platform known as AI-POWR to identify NASH patients who are most likely to respond to the drug. The technology platform also is being used to identify additional indications for CRV431.