New incarnation of the life sciences IPO: Bain’s Cerevel

The SPAC route allows Cerevel to combine two transactions into a single event, all the while presenting a more educated investor base pre-IPO, a senior executive on Bain's life sciences team said.

Compelled by the opportunity to go public in more efficient fashion while scoring a ready-made slate of investors, Cerevel Therapeutics marks the first-ever SPAC merger executed by a Bain Capital Life Sciences company.

“It’s safe to say this will now be an [added] part of our investment approach,” Adam Koppel, managing director of Bain Capital Life Sciences, told PE Hub in an interview.

A Perceptive Advisors-sponsored SPAC on July 30 agreed to merge with Bain-backed Cerevel, which develops treatments for central nervous system disorders such as Parkinson’s disease, schizophrenia and epilepsy. The Boston company was born out of a partnership between Bain and Pfizer in late 2018.

The combination expects to generate net proceeds of $445 million at closing. Besides $150 million from Arya Sciences Acquisition Corp II, a PIPE investment from a consortium of funds contributed $320 million in the deal.

Bain Capital Life Sciences today is also a co-investor in several other SPACs, Koppel said, declining to disclose the specific vehicles. 

Forgoing the traditional IPO

This year has seen an acceleration in blank check company filings, with notable SPAC IPOs ranging from electric vehicle maker Nikola to sports gambling giant DraftKings and Multiplan, a healthcare cost containment company. 

Likewise, Cerevel has taken a path unique among its peers. A typical life sciences investor sees the companies it backs go through Series A and Series B financings, followed by a crossover investment – a Series B or C round – before a company is taken public.  

“That whole process can be 12 to 15 to 18 months,” Koppel said. “What the SPAC enables you to do: combine both of those transactions to a single event. [SPACs] can do that simultaneously and reduce the risk both for the Series B or C investors and the company.”

By choosing to pursue a SPAC IPO, Cerevel’s crossover investment was essentially converted into a PIPE investment. At the same time, management has more certainty around the IPO pricing and what the new syndicate of investors will look like, Koppel explained. 

That’s in part driven by one important distinction between a traditional IPO and SPAC: An S-1 filing is highly regulated by the SEC, constricting the knowledge that is provided by the company to potential investors in a traditional IPO. Whereas an S-4 is filed in a SPAC IPO, lending to greater flexibility. 

“Here you can spend as much time as you would want with prospective investors,” Koppel said. “You have a lot more latitude. You can truly educate investors to make an investment decision.” 

From the perspective of the target company and its existing shareholder base, today’s SPAC model also offers benefits that were lacking 15 years ago, he said. 

One crucial factor is the evolution in the makeup of investors in a SPAC. Importantly, a given SPAC today is much more specialized and dedicated to a specific industry or sub-industry, Koppel explained.

“It’s not just a blind SPAC now; the SPAC is being sponsored by a fund that has built a reputation,” the investor said. 

“Perceptive is a well known and highly regarded life sciences investor,” Koppel continued. “You get a ready-made, really good syndicate of investors. It’s the investors you would want anyway.”

Besides Perceptive, Bain and Pfizer, Cerevel’s PIPE participants include both large anchor funds and focused life sciences investors. The dozen-plus investors include Adage Capital Management, Ally Bridge Group, Boxer Capital, EcoR1 Capital, among others. 

The process in which SPAC mergers come together has also evolved. In this case, Perceptive was looking at a few companies and Cerevel got the nod, Koppel said. 

Two years in the making 

Bain has a history of using complex deal structures to drive strategic transactions.

This time around, the Boston firm teamed up with Pfizer (again, having collaborated on SpringWorks), to create a new high-growth but pre-revenue company.

Launched in late 2018, Cerevel was the outcome of Pfizer opting to divest its CNS assets to focus in on other areas, like oncology. Pfizer scored 25 percent equity ownership, plus a commitment from Bain that $350 million would be committed to support Cerevel’s programs without diluting its ownership. 

Less than two years has passed, and Cerevel is prepping to enter the public markets at an initial market capitalization of $1.3 billion. The company since its inception has transformed in three important dimensions. 

One, the company went from no management team to a new C-suite led by CEO Tony Coles, a longtime pharma executive best known for his leadership at ONYX Pharma. Pfizer helped the company build out a 10-to-12-person leadership team overseeing 100-person workforce in the span of 18 months, Koppel said.

Cerevel, which inherited 11 inactive projects from Pfizer, also reactivated eight to nine active programs, including five of which today are in the human clinical development stage. Notable programs involve a new treatment of schizophrenia, a therapy for epilepsy and anxiety, and a new mechanism for treating Parkinson’s. 

Cerevel concurrently built a reputation with external stakeholders – other companies, investors and key thought leaders in the industry, the investor added. “It was time to further capitalize the company,” Koppel said. “It made sense to diversify ownership, to get other great life science investors around the table, and to truly firm up the balance sheet and enable all the clinical trials.”

At the time of the SPAC merger, Bain had invested $275 million in Cerevel, including its PIPE contribution. With the SPAC, the firm has well surpassed its initial $350 million commitment.  

Bain pre-IPO sits with a 65 percent stake in the company, while Pfizer and management hold 25 percent and 10 percent, respectively, Koppel said. 

Action: Read more about Cerevel and Arya’s merger agreement