The ink dries on the blank cheque craze

In Apexigen’s case, the developer never really stood a chance as a listed entity, particularly in a bear market. A 92% redemption rate meant that it arrived on Nasdaq last July with very little cash; a $50m equity line and warrants attached to its stock added to the prospect of substantial dilution down the road for shareholders.

Making the investment case even harder, the developer was betting on CD40 agonism, an immuno-oncology mechanism that has yet to prove itself. A private placement in January raised $2.8m, but this was apparently not enough to carry on. 

Other Spac developers must be in similarly dire financial situations. Of the 43 identified for this analysis, one has already gone bankrupt and another delisted – 4D Pharma and Xynomics respectively. 

All of which makes it surprising that private developers are still pursuing this route, particularly when reverse merger opportunities abound. Calidi Biotherapeutics, Psyence and Longevity all announced proposed Spac deals this year. With the IPO window barely open, perhaps some consider this the best option available. 

Oculis, for example, closed its deal last week, though a $91m Pipe financing run concurrently with the Spac deal provided most of the $104m transaction proceeds. The Spac with which it merged, European Biotech Acquisition Corp, was sponsored by LSP, a European venture fund that also anchored the Pipe. Oculis presumably had to pay LSP twice, both Spac and Pipe fees; in this instance the developer will arrive on Nasdaq with a respectable bank balance, but the route to that listing cannot have come cheap.  

According to SpacResearch there are 12 drug developers with open Spac deals, awaiting finalisation. Most of these were announced in 2022; the most elderly of these, a deal between the UK developer Zura Bio and a Spac named JATT Acquisition that was triggered back in June, took one of the final steps towards completion last week. 

Exceptions to the rule

Despite some of these gloomy stats there are success stories to be found in the Spac space. One way of measuring success is comparing the enterprise value proposed at the time of the deal with current enterprise value; the former measure assumes no redemptions, so is perhaps an unfair baseline, although this number is touted to investors at the time of the proposed Spac transaction.

Notwithstanding this, on this basis Cerevel, Immunovant and Newamsterdam stand out. All have current enterprise values at least three times higher than their initial target enterprise values.

Of the 43 ex-Spacs identified, seven currently trade with an enterprise value of more than $1bn, led by Roivant, Alvotech and Prokidney.

While Spacs have not lived up to some of the grander promises made by certain proponents, they have delivered promising stories for biopharma. These are exceptions, however, so it is not surprising that enthusiasm for these vehicles has petered out with the bull market.