The Spac story departs from the script

Immunovant, the poster child for the hot new biotech flotation vehicle, might soon go private again.

Immunovant has often been cited as the reason a biotech should consider going public via a special-purpose acquisition company, or “Spac”, until recently standing as a shining example of just what a successful exponent of this financing strategy could achieve.

However, with Immunovant’s majority holder, Roivant, yesterday suggesting that it might take the company private, investment bankers proposing Spac deals will hastily be redrafting pitch documents. If the deal happens Immunovant will have achieved nothing beyond a valuation surge and collapse, tapping new investors for over half a billion dollars in the process.

The Spac story was surely never supposed to have turned out this way. Rather, going public by reversing into a Spac was pitched as being cheaper and faster than an IPO, and the subsequent performance of Immunovant showed that anything was possible after that.

Cue a surge in the number of Spacs being set up with the aim of finding private biotech groups to take public (The reckoning begins for biotech-focused Spacs, February 18, 2021). It is not clear whether this enthusiasm will be dampened by the likely fate of Immunovant, laid low last month by a safety scare and clinical halt with its sole asset, IMVT-1401, in thyroid eye disease.

But the numbers are plain: at the time a Spac called Health Sciences Acquisitions Corporation proposed to take Immunovant to market, in September 2019, the shares were changing hands for around $10. They climbed to a peak of nearly $53 last November, before crashing to close at under $14 last week.

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Yesterday they traded up 14% when Roivant Sciences said it was intending to propose buying back the 42.5% of Immunovant that it did not already own. Roivant suggested that the price would be at a premium consistent with previous biotech minority takeouts, in a mix of cash and stock; the market reaction suggests that a deal might be done at around $16.

A further twist is that Roivant is itself flirting with a public listing. The holding company, controlled by Vivek Ramaswamy, spawned numerous biotechs including Myovant, Urovant, Enzyvant and Sio Gene, in addition to Immunovant.

Now, it would be ludicrous to suggest that, just because a biotech goes public via Spac, it is somehow guaranteed to succeed. Failure is much more common than success in this industry, and share price collapses, followed by low-ball buyouts, are commonplace; a biotech merged into a Spac is just as susceptible to this as any other.

But the optics of Immunovant are poor, particularly considering how much investor cash the company gobbled up. Health Sciences’ own IPO raised $115m, the Immunovant deal brought in $35m of bridge financing that converted into equity, and a $66m warrant exercise plus two secondaries totalling $339m gross followed.

Immunovant's Spac journey
Date Share price Shares out Event Gross proceeds
6 Dec 2018 Health Sciences Acquisitions Corporation is incorporated in Delaware
9 May 2019 $10.00 11.5m Health Sciences closes IPO of shares & warrants $115m
29 Sep 2019 $10.01 11.5m Immunovant to be merged into Health Sciences via issue of 42.8m shares $35m bridge financing*
19 Dec 2019 $15.98 56.5m Deal closes, with Roivant retaining 77% of combined entity
26 Feb 2020 $14.83 66.3m 9.9m shares issued in employee benefit plan
16 Apr 2020 Priced at $14.50 80.0m Immunovant secondary $139m
14 May 2020 Redeemed at $11.50 81.7m Immunovant warrants convert to equity $66m
4 Sep 2020  Priced at $33.00 87.8m Immunovant secondary $200m
17 Sep 2020 $38.90 97.8m 10m shares issued as a milestone, incl 8.8m to Roivant
4 Jan 2021 $45.39 97.8m Shelf registration to raise up to $900m
8 Mar 2021 $15.39 97.8m Roivant, said to own 57.5% of Immunovant, "intends to propose" acquiring the remaining 42.5%
Note: *converted into Immunovant equity once deal closed in Dec 2019. Source: SEC filings.

This would not be so unusual were it not for the fact that, throughout all this, Roivant sat back and bided its time. The holding group let go just 23% of Immunovant in the Spac reversal, and while this was whittled down in secondaries Roivant topped up its holding when a share-based milestone came due.

True, even at $16 a share a Roivant deal has some risk, as a worst-case scenario probably involves IMVT-1401 being discontinued. Moreover, not all investors will have been burned; some will have sold out near the $53 peak or at other respectable prices.

But Roivant’s outlay was minimal, as was the initial risk it took. Immunovant now looks like going back to square one, the biggest winners being the executives whose salaries the fund-raisings paid for and the bankers who took commissions along the way.

It will take more than Immunovant’s exercise in shuffling money from one place to another for the Spac model to be declared a success.

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