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May 25, 2022

Return of the SPAC? Blank check companies not extinct as European bio shell launches

A special purpose acquisition company (SPAC) focused on CDMOs has launched even as fundraising shell companies lose traction.

By GlobalData Healthcare

In a surprising move, a European special purpose acquisition company (SPAC) focused on contract development and manufacturing organisations (CDMOs) has launched in spite of the waning popularity of these fundraising shell companies. The blank check company, named eureKING, launched an initial public offering (IPO) on Euronext Paris on 12 May, raising €150m ($159m). The CEO of pipeline oncology company Coeptis Therapeutics (Wexford, Pennsylvania)—set to be acquired by a different SPAC—told us the industry may be entering a second wave of more transparent SPAC deals targeting public, not private, companies.

A SPAC is a shell corporation listed on a stock exchange with the purpose of acquiring and then merging with (typically) a private company. This way, the private target company can go public without going through the stringent IPO process. SPACs rose to prominence in the bio/pharma world in 2020, with a 1,000% increase in SPAC merger and acquisition (M&A) deal volume between 2016 and 2020. Investors attributed SPACs’ popularity to their ability to allow target companies to go public while bypassing the red tape and scrutiny of IPOs—an attractive proposition in a market that had been disrupted by Covid-19 (GlobalData, 2020 BIO Investor Forum Digital: Why Biotechs Have Been Choosing SPACs in 2020, November 2020).

Despite this, investor skepticism was already growing by early last year. The downsides to these deals include the risk shouldered by investors, as these mergers require much less disclosure than IPOs. By January 2021, Karim Anani, a partner at EY, told the JP Morgan Healthcare Private Equity Forum that the rapid rise in SPAC M&As could flood the market with shell companies seeking acquisitions for which there is not a supply of suitable target bio/pharmas (GlobalData, Not So SPACtacular: Skepticism Over the Surge of SPACs, January 2021).

By March this year, GlobalData had reported that investor experts were describing the SPAC market as ‘challenging’, especially following the recent burst of the biotech bubble and freefall of bio/pharma company shares. Immature companies that had gone public with SPACs risked future lacklustre performances, low-value returns and high-profile failures. Companies rolled back their merger announcements: the pipeline oncology company Valo Health (Boston, Massachusetts) and a SPAC sponsored by Khosla Ventures cancelled their planned merger in November last year, citing ‘current market conditions, particularly in the biotechnology area’.

European CDMO SPAC launches

The latest European bio/pharma SPAC to go public, eureKING, is backed by the investor company eureKARE. eureKING was founded in March this year, only two months before it went public. It aims to acquire European large molecule manufacturers to create a major CDMO for biologics, cell and gene therapies, and live microbiome-related therapies.

The company has already begun scouting for its acquisition spree and has stated that it is ‘in the early stages of a competitive, confidential, bidding process for a potential acquisition’. It must make an offer to the unnamed manufacturer by 31 May or abandon the process.

eureKARE CEO Rodolphe Besserve described eureKING as ‘the first European healthcare SPAC dedicated to biomanufacturing’. Company founders include the former Sanofi (Paris, France) CEO Gerard Le Fur and president of OCP Repartition (Saint Ouen)/McKesson France Hubert Olivier.

Sport SPAC to acquire oncology bio/pharma

Another unusual SPAC-related deal in the bio/pharma space is the announcement by Bull Horn—a sports and entertainment-focused SPAC listed on the NASDAQ Capital Market —that it plans to merge with Coeptis Therapeutics, a pipeline stage bio/pharma company.

Aside from the unlikely overlap between life science and entertainment industries, this sort of ‘de-SPAC’ deal is unusual in that it targets a public company, whereas most SPACs select a private company. The deal is planned to close in Q3 2022. The resulting company will be rebranded as Coeptis Therapeutics Holdings and plans to up-list to NASDAQ. Coeptis CEO Dave Mehalick told us that the unusual public-public de-SPAC deal ‘offers increased transparency and a past-performance record compared to a traditional SPAC deal’ and likely signals a new version of the de-SPAC merger.

Mehalick attributed the decline in SPACs this year to market volatility due to geopolitical turmoil and SEC regulatory scrutiny. While some have been successful, ‘a growing number thrived on limited disclosure requirements, finding sub-par targets and ultimately trading below their $10 list price post-merger’. (SPACs are typically priced at a nominal $10 for each unit as their valuation is not based on an existing business.) At present, there are about 600 public SPACs seeking a deal and 100 pending a close, he estimated. “But… we believe there’s an opportunity for the market to shift its focus to public company targets with proven past performance records, robust business development strategies and growing portfolios, backed by audits and filings that will increase transparency and conviction in the market opportunity.”

Coeptis announced in May that it has optioned rights to three preclinical CAR-T programs from the University of Pittsburgh (Pittsburgh, Pennsylvania), initially focused on breast and ovarian cancers. Coeptis signed a deal with Statera (Fort Collins, Colorado) to acquire its TLR5 agonist platform in April. It has also partnered with Vycellix (Tampa, Florida) on an early development-stage gene-modified cell therapy for multiple myeloma.

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