Biotech companies accelerate Nasdaq listings through reverse mergers

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Biotech reverse mergers on Nasdaq

Highlights

Reverse mergers by biotechs rise to 23 deals in 2024, up from four in 2023, driven by faster market entry and funding certainty compared to IPOs.
Large capital raises mark the trend, with Caldera Therapeutics securing $278 million and Obsidian Therapeutics $350 million to merge with listed companies this summer.
Biotech IPOs also recover to 23 in 2024 from 12 in 2023, but investors note a shrinking pool of viable merger targets amid renewed market interest.

Rise in deal activity and funding certainty

As reported by Financial Times, reverse mergers are gaining traction among private biotech companies that want a quicker and more predictable route to the stock market than a traditional IPO process.

In these transactions, a private biotech merges with an already listed company, often one hit by clinical or strategic setbacks, allowing the private group to bypass a conventional flotation. Investment bank William Blair says 23 biotechs announce plans to pursue reverse mergers this year, compared with four last year, while biotech IPOs also rise to 23 from 12 in 2025.

Lawyers and executives say the appeal lies in speed and financing certainty. Unlike a standard listing, where valuation and investor demand can shift late in the process, reverse mergers allow companies to lock in funding and agree terms earlier. Rita Sobral, a partner at Cooley, says that once a business combination agreement includes committed financing, companies gain greater deal certainty and become less dependent on a narrow IPO window.

The model is also attracting larger pools of capital. In July, Caldera Therapeutics secures $278 million from investors including Bain Capital Life Sciences, Atlas Venture and Janus Henderson to merge with Synlogic. A month later, Obsidian Therapeutics raises $350 million from Atlas and Janus Henderson among others to merge with Galera.

Pandemic IPO aftermath reshapes biotech exits

Part of the increase stems from the large number of listed biotech groups created during the pandemic fundraising surge that later ran into clinical setbacks. FactSet data show 51 biotech IPOs in 2020 and 70 in 2021 before the market weakens the following year, leaving behind a larger supply of potential merger shells.

Examples include Cyclerion Therapeutics, which went public in 2019 and later faces a series of clinical disappointments, including the failure of its sickle cell treatment. The company completes a reverse merger last month with Korsana Biosciences, a neurodegenerative disease-focused biotech, after Korsana raises $380 million in pipe financing from investors including Fairmount and RTW Investments.

Market participants say the growing role of specialist life sciences investors is helping reverse mergers lose their earlier stigma as a last-resort option. Brian Rosenzweig, a capital markets partner at Covington, says many of the same sophisticated investors that support traditional biotech IPOs are now backing reverse-merger financings as well.

Even so, investors say companies are still weighing both routes. The recovery in biotech IPOs offers another path for strong businesses, with recent listing Alamar Biosciences seeing its shares rise about 15 per cent since going public in April, while some investors warn that the number of attractive clean-shell merger candidates is shrinking.

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