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Warrantless but not unwarranted: Therapeutics Acquisition prices first ever SPAC IPO of common shares

2020’s blank check boom hit another major milestone with Therapeutics Acquisition (TXAC).

For the first time in their roughly 20-year history, a SPAC has completed an IPO by selling common shares rather than units, signaling ever-greater demand in the space. SPAC offerings normally include units consisting of shares of common stock and tradable warrants. Therapeutics Acquisition marks a notable first, but it is also part of a trend, with more SPACs this year lowering their warrant component to 1/3 and 1/4 warrants.

2020 SPAC milestones

  • The first ever SPAC IPO of common shares: Therapeutics Acquisition (TXAC)
  • The largest SPAC ever to go public: Churchill Capital Corp III (CCXXU)
  • The largest SPAC ever to file for an IPO: Pershing Square Tontine (PSTXU)
  • The biggest quarter ever by proceeds (tied for most deals): 2Q20, 24 SPACs and $7.2 billion
  • On pace for a record year in 2020
  • Several companies have chosen SPAC listings over IPOs

Formed by RA Capital, a pre-IPO crossover investor active in the biotech space, Therapeutics Acquisition (TXAC) raised $118 million by offering 11.8 million shares of common stock at $10 per share. The SPAC originally filed to offer units with shares and 1/3 warrants, but in a sign of demand removed the warrants in a filing on Monday. It is led by Chairman and CEO Peter Kolchinsky, a founding partner at RA Capital. The SPAC’s sponsor, an affiliate of RA Capital, has committed to a $25 million forward purchase agreement at the time of a merger.

Without a warrant overhang, the team at Therapeutics Acquisition should have an easier time negotiating an acquisition with an eventual biotech target.

But why would IPO investors buy common shares when they’re normally offered units?

Foremost this is a strong vote of confidence in RA Capital that it will find a quality biotech at an attractive price. SPAC shares normally do not deviate much from the $10 redemption value until an acquisition is announced, and often only move after the deal is closed. In order for a SPAC share offering to work, IPO investors must not only believe that RA Capital’s target will deliver strong returns, but that the announcement of the proposed target will cause the share price to jump. While this was RA Capital’s first blank check company, the firm has a long track record of successful biotech investing. This year alone, RA has been a key shareholder on six biotech IPOs, and the top shareholder on one, Forma Therapeutics (FMTX; +119% from IPO). It is also the lead investor on this week’s Nkarta (NKTX).

The recent performance of SPAC IPOs formed by similar biotech investors likely fueled interest in Therapeutics Acquisition as well. The year’s three most comparable SPACs all closed Tuesday with double-digit returns despite not having announced an acquisition: EcoR1 Capital’s Panacea Acquisition (PANAU; +18% from IPO; units with 1/3 warrants), Perceptive Advisors’ ARYA Sciences Acquisition II (ARYBU; +10%; 1/3 warrants), and Deerfield Management’s DFP Healthcare Acquisitions (DFPHU; +10%; 1/4 warrants). Panacea is notable for jumping 13% on its first day last week, the biggest ever first-day pop for a SPAC.

While the IPO window is wide open to biotechs, recent SPAC listings from Immunovant Sciences (IMVT; $25.58) and Immatics (IMTX; $14.45) showed that some promising biotechs may prefer the SPAC route over an IPO, offering a unique opportunity for companies like Therapeutics Acquisition.

Therapeutics Acquisition Corp’s relatively small deal size also likely made it easier to complete a warrantless offering, especially for a healthcare investor of RA Capital’s renown. The average SPAC deal size this year is $284 million, more than double the amount that Therapeutics Acquisition raised.

Healthcare-focused SPACs

The article Warrantless but not unwarranted: Therapeutics Acquisition prices first ever SPAC IPO of common shares originally appeared on IPO investment manager Renaissance Capital’s web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital’s research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital’s Renaissance IPO ETF (symbol: IPO), Renaissance International ETF (symbol: IPOS), or separately managed institutional accounts may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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