The number of health technology groups listing by merging with special purpose acquisition companies has slowed dramatically from the start of the year. But the closing of three such deals this week shows that there is still some action to be found.
The companies involved are active in sectors that have seen a lot of attention from Spacs: telemedicine and proteomic analysis. But the slowdown in deal making, which appears to be partly a result of a possible move by the SEC to change the way it classifies Spac warrants, is clear.
In the first quarter of 2021 nine Spac acquisitions of health tech companies were announced; in the second quarter there were just five, and three of these came in the first half of April. There has also been a sharp drop in the number of healthcare-focused Spacs floating.
An Evaluate Vantage analysis of data provided by the website SpacInsider shows that this figure has shrunk from a peak of 15 in January to just one last month. The amount of money they have drummed up has also declined sharply. The analysis below covers biopharma companies as well as health technology groups.
One likely reason for the diminished activity – and the dates certainly line up – is a statement made by the SEC on April 12. The regulator said it was concerned about the accounting of Spac warrants, and suggested that it might start to classify these as a liability on the balance sheet rather than as equity. Since then many Spacs appear to have focused on getting their filings in order rather than progressing deals.
Still, there are exceptions. Yesterday’s finalising of the deal between the proteomics specialist Quantum-Si and Highcape Capital Acquisition Corp creates a sizeable new player in the nascent field of proteomics. The deal confers on Quantum-Si a pro forma equity value of $1.5bn, a chunky amount for a group whose technology will not reach market until next year – and even then, only for research use.
The valuation includes the $109m of cash held in Highcape’s trust account that will be transferred to Quantum-Si, as well as a $425m Pipe round, in which Foresite Capital Management, Eldridge, accounts advised by ARK Invest and Glenview Capital Management participated.
Part of the reason for Quantum-Si’s success is its founder. Dr Jonathan Rothberg has founded and either floated or sold several medtech and diagnostics groups, notably Curagen, Raindance and Ion Torrent. More recently he established the handheld ultrasound device developer Butterfly Network, which went public via a Spac deal in February.
Quantum-Si’s tech is designed for the digital analysis of proteins and is initially aimed at academic research and drug discovery, markets it claims are worth a collective $21bn. Following that it has ambitions to develop diagnostic applications in healthcare.
Another proteomics group, Nautilus Biotechnology, also closed a merger with a Spac, in this case Arya Sciences Acquisition Corp III. Gross proceeds from the transaction came to $345m, including a $200m Pipe round in which investors such as Perceptive Advisors, RA Capital Management, Bain Capital Life Sciences, Orbimed and Vulcan Capital participated.
Speaking the right language
This week’s other Spac deal was perhaps slightly more unusual in that the acquirer bought two medtechs simultaneously. Gigcapital2 closed its acquisitions of the telemedicine groups Uphealth and Cloudbreak Health, with Uphealth giving its name to the new entity.
Uphealth offers telemedicine services such as video appointments with doctors, as well as a digital pharmacy including a compounding laboratory, enabling patients to order their prescriptions online. Cloudbreak’s speciality is incorporating medical interpreters into video calls, with the company claiming that this allows healthcare professionals to provide care in over 250 languages.
Of these groups, Quantum-Si is the winner in terms of shareholder enthusiasm, though none has exactly set the markets alight. Quantum’s stock is up 2% since its Spac merger was announced, whereas Nautilus and Uphealth are respectively 2% and 3% down.
This article has been updated to reflect the close of the merger between Nautilus Biotechnology and Arya Sciences Acquisition Corp III.