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Inside Track: Behind the Scenes of a Major Biotech SPAC

RBC Capital Markets’ Noël Brown, Head of US Biotech Investment Banking, goes behind the scenes of one of the biggest biotech SPAC deals of the year with Nuvation Bio Founder and CEO, Dr. David Hung and Omega Funds Partner and President of its Omega Alpha SPAC, Michelle Doig. These two industry leaders at the cutting edge of biotech innovation and venture capital share how they brought Nuvation Bio’s public market vision to fruition on the latest episode of RBC’s Pathfinders podcast.

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Key Points

  • For exciting emerging target companies like Nuvation Bio, valuation certainty, minimizing market risk exposure and process efficiency are key points of distinction between SPACs and IPOs.
  • Biotech SPACs like Omega Alpha are searching for strong management teams, deep product pipelines, and multiple value inflection points in high quality SPAC targets.
  • Not all SPAC sponsors are created equal. Sponsor credibility and strength of the SPAC’s investor roster are needed to lock in a large enough PIPE to meet financing needs.
  • SPACs could evolve to be more than an alternative to IPOs and become a “premium option” for more and more companies going public.

Dr. David Hung and Michelle Doig are no strangers to the SPAC phenomenon. As Founder and CEO of Nuvation Bio, a biotech company tackling some of the greatest unmet needs in oncology, David recently took the company public in one of this year’s biggest SPAC related deals. And as Partner at Omega Funds, Michelle not only led and syndicated Nuvation Bio’s Series A but is now also President and Director of the newly formed, Omega-sponsored, Omega Alpha SPAC (Nasdaq: OMEG; oversubscribed $138m IPO priced January 6, 2021).

Before taking Nuvation Bio public, David’s previous company, Medivation, went public via de-SPAC merger in 2003. Now Nuvation Bio has done the same. What is it about SPACs that was compelling enough to do it not only once, but twice?

“When my first company Medivation went public through a SPAC almost 17 years ago, SPACs didn’t have the luster they have today,” explains David. “They were often the financing route for companies that were marginal or distressed. It was an unusual way to go public back then, but Medivation ended up being one of the most successful healthcare SPACs ever. We raised a total of $12 million in our first financing and, over the next 13 years, raised $440 million to yield a market cap of $14.3 billion. So, it was an easy decision to go public through another SPAC with Nuvation Bio.”

Early last year, prior to the SPAC transaction, Nuvation Bio secured a striking $275 million Series A round, led and syndicated by Michelle at Omega Funds. At the time, David wasn’t really thinking about further financing, let alone going public. But with the growing uncertainty of a pandemic and a looming presidential election, he realized he wanted to ensure future funding fast.

“I thought if we were to going to do another financing, we needed to do it sooner than later,” explains David. “On top of that, after our Series A closed, we made a tremendous amount of progress with multiple programs heading to the clinic a lot faster than we anticipated. Our first program started dosing patients in 2020, not even a year and a half after we started the company, so we needed capital.”

Finding the right SPAC sponsor

It wasn’t difficult for David to assure his investors that using a SPAC to capitalize those programs would be a smart move. He also happened to have a long-standing relationship with Oleg Nodelman and Scott Platshon of EcoR1 who had also sponsored their own SPAC, Panacea, which had all of the attributes David was looking for in a sponsor.

“The decision to work with Panacea was easy. I've known Oleg and Scott for over a decade. I completely trust them. Then when I saw the syndicate in the SPAC, it was really top-notch. Panacea also had $144 million in cash, so it was on the higher end of many of the SPACs we looked at. And we were confident with Panacea that we would be able to raise the $500 million we ultimately ended up raising for a total of $644 million in the PIPE, with the SPAC combo that closed last year.”

Finding the right SPAC target

For his part, Oleg Nodelman said at the time of the merger that when he set up Panacea, his 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. That’s exactly what he found with Nuvation Bio.

According to Michelle Doig, that criteria is a useful checklist for any private company looking to gauge their own potential to be a target for a SPAC deal.

“First and foremost, you need a strong management team that's ready for primetime,” says Michelle. “Secondly, a platform and/or broad pipeline of products, ideally driven by novel science to address severe unmet needs. And then lastly, multiple upcoming value inflection points in news flow post-transaction. As an example, Nuvation Bio was able to dose its first patient between announcing and closing the de-SPAC. It just ticked all the right boxes. Nuvation is really the poster child for the right SPAC target.”

The SPAC sponsor perspective

As a leading life sciences venture capital firm, Omega Funds has been a frequent backer of IPO-bound biotechs. Strategically, what’s driven the decision to create the Omega Alpha SPAC? How does it differ from other SPAC sponsors, and how will it compete for high quality targets in today’s increasingly crowded markets?

“We wanted to make sure we could offer high-quality companies the full spectrum of capital-raising optionality,” says Michelle. “With Omega Alpha, we can now transact across the full investment spectrum, from seed and company creation through venture capital, IPO, SPAC plus PIPE, structured PIPEs and secondaries.”

“There are also key differentiators in our SPAC. We have a Transatlantic presence with boots on the ground across the US and Western Europe. 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. There is increased competition out there, but I think those differentiators are going to help us attract the best targets.”

SPAC versus traditional IPO

The rise of biotech SPACs shows no signs of slowing down. So when is a SPAC the right option for a private company looking to go public? And why should they be choosing a SPAC versus IPO? According to Michelle, the short answer is time and money.

“By merging with a SPAC and raising a concurrent PIPE, you can effectively compress a crossover round and an IPO, and/or even a first follow-on offering, into one transaction and raise a larger quantum of capital all at once,” explains Michelle. “Saving that time, distraction and dilution is key for companies, especially if you see potential volatility ahead.”

"By merging with a SPAC and raising a concurrent PIPE, you can effectively compress a crossover round and an IPO, and/or even a first follow-on offering, into one transaction and raise a larger quantum of capital all at once."

Michelle Doig, Partner, Omega Funds and President, Omega Alpha SPAC

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“You're also protecting  yourself from potential market risk. You could get all the way through a much longer crossover + IPO process only to have a random macro event or a tweet about drug pricing negatively affect your deal on the day or week of pricing. With a SPAC, you negotiate the valuation up front.”

For David, the accelerated speed and efficiency of the SPAC process has another benefit. “Our highest priority is to develop the best drugs we can and get them to patients as fast as is humanly possible,” says David. “Every minute we’re not spending on financing that we can spend trying to get drugs to patients sooner is a huge priority for us.”

"Every minute we’re not spending on financing that we can spend trying to get drugs to patients sooner is a huge priority for us."

Dr. David Hung, Founder and CEO, Nuvation Bio

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The benefits are clear, but does Michelle see any risks to choosing the SPAC route? “I think private companies do need to be wary that there are some risks in the process. One of the key reasons the Nuvation Bio merger went so well was because of the stellar management team, existing Series A syndicate to anchor the PIPE and high-quality sponsor. Companies do need to be aware that not all sponsors are created equal. 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.”

With SPAC momentum accelerating, are there any other downsides companies should be alert to before choosing the SPAC route? “I don’t think there are a lot of downsides,” says David. “I would tell any private company that’s looking to do a SPAC to make sure that it meets their needs, it has enough capital, that they can lock in a large enough PIPE for their financing needs, and that they’re working with a high-quality team they trust.”

Will the SPAC bubble burst?

So, are SPACs here to stay as an alternative to IPO? Could they go so far as to make the traditional IPO obsolete?

“I absolutely believe that SPACs are here to stay,” concludes David. “Not only are SPACs an alternative to traditional IPOs, I think they're now a premium option for many companies. I'm not sure IPOs will become obsolete, but I do think that increasingly we’ll see more and more companies elect to go the SPAC route.”

View audio transcript

Featured Guests:

Dr. David Hung

Dr. David Hung
Founder, President & CEO, Nuvation Bio


Michelle Doig

Michelle Doig
Omega Funds Partner and President of its Omega Alpha SPAC

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