Noel Brown
Hello and welcome to another edition of Pathfinders, a podcast series from RBC Capital Markets that explores the fast-moving world of biotech in conversation with leading companies and investors who are shaping the future of our industry.
I’m Noel Brown, Head of U.S. Biotechnology Investment Banking here at RBC Capital Markets. And in this episode of Pathfinders, we're excited to be joined by two leading voices at the cutting edge of biotechnology innovation and the investment strategy responsible for biotech SPAC success in the public market. I would like to introduce Dr. David Hung, CEO of Nuvation Bio, a biopharma company tackling some of the greatest unmet needs in oncology, which recently went public in one of this year's biggest SPAC related deals. In addition, I’d like to introduce Michelle Doig, Partner at Omega Funds and President and Board Director of Omega’s Alpha SPAC, a newly formed biotech SPAC targeting the sector.
Noel Brown
David and Michelle, welcome and thank you for joining us. This feels like a really unique opportunity to get the inside track from two top authorities on the transition of a successful biotechnology company from the private to public market, and also what lessons our listeners can learn regarding your experience with SPACs.
Noel Brown
So, David, do you want to start by giving us an overview of Nuvation – it’s purpose, your goal at a high level – and then we can drill down into the unique aspects of a SPAC?
David Hung
Sure. Hi, Noel, thanks for having me on the podcast. So, Nuvation Bio is a biotech company that I founded about two and a half years ago, it's focused exclusively on oncology. And we're trying to develop a portfolio of six different programs targeting many of the world's most difficult to treat cancers.
Noel Brown
David, you're no stranger to SPACs. Your last company Medivation went public via de-SPAC merger and now Nuvation Bio has done the same. So, with other non-traditional alternatives being available to you as a founder and CEO, what is it about SPACs that you found compelling enough to do not only once, but then again a second time?
David Hung
Certainly, there are a lot of financing alternatives available to companies like Nuvation Bio, both private and public, but within the public route, probably traditional IPOs and SPACs are the two most common ways to do that. Medivation, my first company, which I started almost 17 years ago in 2003, actually went public through a SPAC. But in 2003, SPACs did not have the lustre that they have today. SPACs were a little bit of a dirty word, and often the preferred financing route for companies that were marginal or distressed. so it was an unusual way to go public back in 2003. But we ended up being actually, I believe, the most successful healthcare SPAC in history. We raised a total of $12 million in our first financing, and ultimately migrated from the Pink Sheets to Amex to NASDAQ. And over the next 13 years, we raised a total of $440 million in total financings to yield a market cap of $14.3 billion, and we were acquired by Pfizer in 2016. That represented an ROI of 21,000%, as I said, the most successful healthcare SPAC ever, to date.
So, I was very familiar with the SPAC route. But in the 17 years since Medivation went public through a SPAC, SPACs have become all the craze, as you know, and today, many high-quality companies see SPACs as a way to go public. Soit was not a difficult decision for me to go public through another SPAC.
Noel Brown
Interesting. So, you had secured an amazing $275 million Series A round, which was led and syndicated by Michelle at Omega Funds. This time around with Nuvation, was a SPAC always part of the original game plan? Or was that more of an audible you called on the field after you got the Series A finished and were assessing how to proceed?
David Hung
Well, when we closed the Series A, we really did not have other thoughts about financing further at that point, certainly not in the near term. And we were not really even thinking about going public, necessarily. But, being a CEO, my responsibility is always to make sure that I'm well capitalized. And I'm always looking ahead as to what my needs might be, and trying to find the best and most opportune times to do that. And in many ways, this was an audible on the field, because there were a lot of things that were changing since the Series A was closed. Number one, maybe the most unexpected, was this pandemic. I don't think any of us anticipated that this pandemic would go on for as long as it has or have the global impact that it has had.
And on top of that, when we started to look at the upcoming Presidential election in November, we thought there was a possibility that could add a few more variables into the equation. So, as I started to think about our future, going to potentially a very uncertain time, we thought that if we were going to do another financing, maybe we need to do it sooner than later. And we thought that if we were going to go public, going public through a SPAC might have some significant advantages if we could do it in a way and at a valuation that we considered attractive for our investors.
Noel Brown
So how was it with the series A investors? Was that a discussion that was difficult? Did you have to sell it hard or were people jumping on board and 100% behind you?
David Hung
I don't think it was a hard sell for a number of other reasons. We also happened to make a tremendous amount of progress since our Series A, and actually, were heading to the clinic a lot faster than we would have thought. In fact, our first program started dosing patients in 2020, not even a year and a half after we started the company. So we were heading to the clinic with multiple programs. We needed capital. I don't think any of us anticipated our programs would move so rapidly but given the fact that they were advancing so significantly, it was a very easy sell to our investors to make sure we had adequate capital to realize the potential of those programs.
Noel Brown
Interesting. Michelle, had Omega been involved with any of these SPAC mergers in the past prior to this deal with Nuvation?
Michelle Doig
No, this was our first portfolio company merger with a SPAC. However, we did have several experiences with reverse mergers, And merging with a SPAC is a much more straightforward process than a reverse merger. As for Nuvation, as David mentioned, given that the company still had well over a, you know, $200 million from the Series A, and had been making so much progress while in stealth mode, we hadn't been planning to go public so soon, but when presented with the opportunity to raise enough capital for David and the team to, fully execute on the pipeline potential, without the need to fundraise again for many years, if ever, at a fair valuation, combined with the fact that Nuvation really ticked all the key success factors for an ideal SPAC target, it became sort of a no brainer.
Noel Brown
On that point of key success factors, from your perspective, what are those?
Michelle Doig
First and foremost, is a -strong management team that's, ready for primetime. And we certainly had that at Nuvation. With David, there was the extra bonus that he'd already been a public company CEO who generated exceptional returns for shareholders. You know, this product isn't for everyone, because in addition to a compelling story it’s important for you to have credibility with the Street for this to make sense. Second, as David mentioned, very broad pipeline of products, that address high unmet needs. And then lastly, multiple upcoming value inflection points in newsflow post transaction, again, Nuvation was able to dose its first patient between announcing and closing the de-SPAC. So really, Nuvation ticked all those boxes;. It’s the poster child for the right SPAC target.
Noel Brown
Interesting. So, a quote from Oleg Nodelman, of EcoR1 and also CEO of Panacea, the SPAC, The plan was to partner with a company that had “an exceptional management team, a deep pipeline, and a platform technology that could enable success to be replicated over and over”, and then added, that “that is exactly what we saw in Nuvation”. So, from your perspective, David, what attributes were you looking for in a SPAC sponsor? And then why Panacea?
David Hung
Well, I think the decision to work with Panacea was pretty easy because I've known Oleg and Scott Platshon for over a decade I completely trust them, I think they're really bright, really competent, and are just great partners. Then when I saw the syndicate in the SPAC, they were top-notch, and you always want a top-notch syndicate to be associated with your company. Panacea also had $144 million in cash in it, so it was actually on the higher end of many of the SPACs that we had looked at. And we were also confident with Oleg that we would be able to raise the $500 million that we ultimately ended up raising for a total of $644 million in the PIPE with the SPAC combo that we closed last year.
Noel Brown
You touched on four key things there: the trust of the sponsors of the SPAC, the syndicate of investors invested in that SPAC, the fact that it had a solid amount of cash, and then the ability of that SPAC to raise additional capital with the concurrent PIPE. Michelle, from your perspective as a participant in this process, you were one of the key investors in the company. What was it about the SPAC as an entity, that made Omega, your fund, now want to sponsor its own SPAC?
Michelle Doig
Well, as David mentioned, all the benefits for the target company, the speed, the certainty of transaction, and a really curated long-term investor base. At Omega, our Omega Alpha SPAC, we can now transact across the investment spectrum, from seed and company creation through venture capital, IPO, SPAC plus PIPE, structured PIPEs and secondaries. So, I think the very best companies like Nuvation, they have options, and given the attractiveness of this product, we want to make sure that we have access to and can offer those very best companies the full spectrum of product offerings.
Noel Brown
As a sponsor, what are you looking for in a target company? How would you help a private company gauge their own potential to be a target for a deal with Omega Alpha’s SPAC?
Michelle Doig
First and foremost, certainly an exceptional management team, ideally, with some street credibility and track record. Second is a platform and/or a pipeline of products, ideally driven by novel science to treat severe multiple unmet needs. And then finally, multiple upcoming value inflection points. Companies, where it looks like there's a lot of binary risk or it's a one product company, those would be tricky for us. And then across sort of all the therapeutic areas. I think our firm in particular has a strong interest in expertise in oncology and Immunology. But but certainly anything within the life sciences space is of interest to us.
Noel Brown
Michelle, you and I have known each other for a very long time. You've been a banker, you’ve been in my seat before, you've been an investor, you've been on the principal side for a very long time. And for the most part, I've seen you active on taking companies public via the IPO path. So, what's your take on this now?When and why is it the right option for a private company? When and why should they be choosing SPAC versus IPO?
Michelle Doig
The short answer is time and money. And, as the old adage goes, time is money. So, by merging with a SPAC and raising a concurrent PIPE, you can effectively compress a crossover round and an IPO, or in Nuvation’s case, even a first follow-on offering, into one transaction and raise a larger quantum of capital all at once. As we know, the crossover round has become a necessary stop along the way on the path to an IPO. And if you combine that process with the upfront marketing, diligence and SEC requirements, that’s a 6 to 12-month process. So being able to compress that timeline is key for companies, as David mentioned, especially if you see potential volatility ahead. In addition to that time saving, you're also protecting from market risk. You could get all the way through the six-month IPO process, only to have a tweet, about drug pricing, or even a completely unrelated macro event negatively affect your deal on the day or on the week of pricing. But with a SPAC, you negotiate the valuation up front, and are able to market to a curated list of long-term healthcare specialist investors. Again, in Nuvation’s case, they had several large blue-chip healthcare specialists and some generalist funds in the Series A who really stepped up to anchor the PIPE. So, if you already have that base, you're in a really good position to be able to market a successful de-SPAC process with a SPAC.
David Hung
There’s also one other thing I'd like to add to what Michelle just said. Certainly, the speed at which we could close a SPAC in anticipation of potential volatility ahead is certainly one concern. But to have an efficient process, which minimizes our time away from our business, is also really important. Our absolutely highest priority is to develop the best drugs we can and get them to patients as fast as humanly possible. Every minute we're not spending on financing that we can spend on our business to try to get these drugs to patients sooner is a huge priority for us.
Noel Brown
So both of you talked a lot about, some of the big benefits of this process. But what are some of the challenges to going public this way? If you're advising a friend, what are the downsides with taking this approach?
David Hung
I don't think there's actually a lot of downsides. I think that the SPAC process really allows you to do pretty much anything you want to do in getting public, I don't see any disadvantages versus a traditional IPO. So I would tell private companies that are looking to do a SPAC, just make sure that it meets their needs, it has enough capital, that they can lock in a large enough PIPE for their financing needs, that they're working with a high-quality team. A team, they trust, a syndicate they like. If they have all those things, I think it's a great financing alternative.
Michelle Doig
I think that's right, for the right companies. If you're ticking all those boxes that we talked about before, there really isn't a lot of downside. As we know, the IPO market has been quite hot there's often that post pricing pop, and that’s not necessarily seen in a SPAC. However, you know, with the SPAC, you give the full value to the company and you're often able to negotiate a better valuation upfront. Again, you're taking that market risk out.
The other thing I've heard is that you're not necessarily going to get the research coverage and the aftermarket support that you would get from your IPO banking syndicate if you merge with a SPAC. Well, you know, Nuvation has six excellent analysts covering the company. And, so by hiring the right capital markets advisors during the transaction, you can actually end up with a better than IPO syndicate and bank support, post close.
Noel Brown
So, where the two of you sit now, this deal’s done and we're seeing rampant proliferation of these companies. What concerns do you have about the sheer growth in the number of SPACs and the increasing frequency of this deal path?
David Hung
Well, I think anytime you see any mania in anything, you have to worry about when it's going to end. And certainly, there's been, you know, major SPAC mania over the last year. And at some point, you have to just question: how long can that last? Are the companies that are going public really at a level that they should be going public or are they ready to be public? I think there's a lot of questions about that. But I'm sure there are many really high quality companies that can continue to go public through the SPAC route.
Noel Brown
And Michelle, how do you see Omega Alpha’s SPAC differing from some of these other SPAC sponsors? How are you going to manage in your hunt for targets when, what’s happening now is increased competition for the high-quality names.
Michelle Doig
So, I think, there are a lot of differentiators in our SPAC. The first is, we have a Transatlantic presence, with boots on the ground across the US and Western Europe. And there's a lot of value arbitrage potential, being able to hunt for targets in Europe. As I said, we have a lot of experience investing across the spectrum, especially in leading and syndicating crossover rounds. I'm not sure all the SPACs out there can say that.
We have an accomplished management team and also an exceptional Board of Directors, made up of industry leaders, from all stages of drug discovery and development, again, in both North America and Europe. And we have a really clean structure: Omega Fund Six is our sponsor, we do not have any warrants and we have a curated investor base, the majority of whom are interested in participating in a concurrent PIPE. And, again, we're looking for that high quality target. And I think that there are roughly 30 life sciences SPACs hunting for targets right now so, there is competition out there, but I think our differentiators are going to help us attract the best targets. And to David's point, the very high-quality ones have choices. We want to make sure that we can offer them that full spectrum of investment optionality.
Noel Brown
So in corporate finance, strategy and biotech, we've seen a long history of evolution and innovation, right. I think back to how IPOs used to be done, when I first got into the business over 20 years ago, where we would sit down and map out a global three week schedule. And now we're down to what we call a “traditional” in air quotes IPO process that's done inside of a week. We looked at how follow-on’s used to be much longer drawn out marketing processes. And now, more times than not, we're doing these confidential wall crossings. And so, again, this kind of evolution towards efficiency has been happening throughout the market. should we be looking at SPAC and deSPAC mergers as here to stay, not flash in the pan, but now legitimately one of the alternatives that every company should be looking at when they're thinking about going public, assuming they can check all those boxes.
David Hung
I absolutely believe that SPACs are here to stay. Not only are they an alternative, I think they're actually a premium option for many companies.
Michelle Doig
Yeah, I think that's right. It just makes so much sense for very special reasons to our sector, for those companies that that tick those boxes. Again, it's not for every company, because some companies actually do need that time to grow and to gel as a team and build those relationships with the Street. So, for some, the drawn-out process of the crossover round, the IPO process with the testing the waters meetings ahead of the actual roadshow, that's a necessary process.
Noel Brown
And so, could I push the thought a little further and ask, do you think SPACs have gone so far as to make the traditional IPO obsolete?
David Hung
I think they're both alternatives. But I think there are real advantages to doing a SPAC. I'm not sure traditional IPOs will necessarily become obsolete. But I do think that increasingly there will be more and more companies that will elect to go the SPAC route.
Michelle Doig
There are a lot of SPACs out there and, again, the reason that the Nuvation/Panacea merger went so well was because not only of the stellar management team and existing Series A syndicate to anchor the PIPE, but also because of the high-quality sponsor and its investors. I think companies need to be aware that not all sponsors are created equal. And to David’s point, whenever there’s mania, there’s probably a few that get out that maybe shouldn’t. And so, I think companies just need to be wary that there are some risks and they should consider the SPAC capital structures especially if there are warrants involved and sponsors very carefully.
Noel Brown
I think that's a great point for us to end on. Thanks again, David and Michelle, for sharing your insight and your vision with us today. If you're wondering what else is on the horizon for the biopharma industry, we'll be keeping track right here on Pathfinders. Thank you all for joining us and stay tuned for future episodes. And of course, if there are any areas that we discussed that you'd like to learn more about, don't hesitate to contact us directly for a more in-depth discussion or visit our website for further insights. Thank you.