Life Sciences and Healthcare SPACs: The Emergence of an IPO Alternative

Speakers: Glenn Pollner, Keith Trammell, Alan Wilson, Bernie Cooney, Jason Forschler, Marisa Frackman and Sameer Khambadkone

SEPTEMBER 2, 2020

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WEBINAR

Speakers

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Glenn PollnerPartnerWilmerHale

Bernie CooneySenior PartnerFlagship Pioneering

Keith TrammellPartnerWilmerHale

Jason ForschlerPartnerPerella Weinberg Partners

Alan WilsonSenior AssociateWilmerHale

Marisa FrackmanManaging DirectorWestwicke

Sameer KhambadkoneManaging DirectorWestwicke

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Agenda

— Overview of SPACs— The Current SPAC Market— Going Public via SPAC Business Combination— Perspectives on the SPAC Market— Other IPO Alternatives— Q&A

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Overview of SPAC Structure

— SPACs are newly-formed shell companies formed for the purpose of engaging in a business combination with one or more operating businesses

— SPAC sponsors typically have significant equity investment and/or operating experience, with deep knowledge and contacts within the vertical the SPAC will focus on

— SPACs raise capital in an IPO, typically by selling units composed of shares and warrants (although “no warrant” structures have occasionally been used, including in recent IPOs of some SPACs targeting the life sciences sector)

— IPO proceeds are held in trust to be used for an initial business combination transaction— SPACs typically have 18-24 months to complete an initial business combination transaction (with

24 months being most common)— SPAC sponsors typically receive a 20% promote at nominal cost (e.g., $25,000 investment); in

addition, SPAC sponsors will typically have some “at risk” capital (typically an investment in warrants, the proceeds of which are used to help cover IPO expenses and working capital)

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Overview of SPAC Structure

— SPAC shareholders usually have a right to vote to approve the business combination transaction (e.g., vote is required if SPAC is a merger party or will issue more than 20% of its outstanding shares in the transaction)

— In addition, all SPAC shareholders have a redemption right (whether they vote for or against the business combination) (redeeming shareholders get to retain warrants)

— If no shareholder vote, redemptions are required to be made through a tender offer— Recent trends in SPAC terms:

• Use of promote structures that more closely align sponsor and investor interests (e.g., Pershing Square Tontine Holdings, Executive Network Partnering and Ribbit LEAP)

• Lower or no warrant coverage (e.g., Therapeutics Acquisition and Health Sciences Acquisitions 2)• “Tontine-like” terms to reward shareholders who do not redeem with additional warrants (e.g.,

Pershing Square Tontine Holdings)

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Overview of SPAC Market

— At least 81 2020 SPAC IPOs to date, with average size of ~$400 million and total gross proceeds of $33.1 billion

— More SPAC IPOs since July 1, 2020 than in the first six months of 2020 — Nearly half of all IPO dollars in 2020 is from a SPAC IPO— Of the 145 SPACs that went public between 2015 and 2019, more than half have completed a

business combination, approximately 15% have a business combination pending, approximately 29% are actively looking for a business combination target and less than 5% have liquidated*

— Of the 120 SPACs actively seeking an acquisition target, approximately 15% are specifically considering targets in the heathcare/life sciences space

— SPACs currently looking specifically for targets in the life sciences and healthcare industries raised an average of ~$125 million in gross IPO proceeds

— The SPAC market has increasingly seen higher quality/higher profile sponsors enter the market over last several years, and recent notable business combinations outside of life sciences and healthcare have included Virgin Galactic, DraftKings and Nikola, among others

8*Source: Ortenca Aliaj et al., Financial Times, Can Spacs shake off their bad reputation? (Aug. 13, 2020).

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Overview of SPAC Market – Recent Healthcare/Life Sciences SPAC Business Combinations

— Arya Sciences Acquisition Corp. (Perceptive)/Immatics (completed July 2020) (clinical-stage biopharmaceutical company)

— Arya Sciences Acquisition Corp. II (Perceptive)/Cerevel Therapeutics (pending) (clinical-stage biopharmaceutical company)

— Chardan Healthcare Acquisition (Chardan)/BiomX (completed October 2019) (microbiome company)

— Churchill Capital Corp. III (M. Klein & Company)/MultiPlan (pending) (healthcare cost management solutions)

— Greenvision Acquisition Corp. (Greenvision Capital)/Accountable Healthcare America (pending) (technology-enabled population health management company)

— Health Sciences Acquisitions (RTW)/Immunovant (completed December 2019) (clinical-stage biopharmaceutical company)

— Healthcare Merger Corp. (MTS)/ SOC Telemed (pending) (telemedicine)— New Frontier Corp. (New Frontier Public Holding Ltd.)/United Family Healthcare

(completed December 2019) (premium private healthcare operator, China-based) 9

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Overview of SPAC Market – Selection of Recent Healthcare/Life Sciences SPAC IPOs Currently Seeking Targets

Specifically Targeting Healthcare/Life Sciences Industries:

— Alpha Healthcare Acquisition Corp. (in registration) (targeting healthcare industry)

— Amplitude Healthcare Acquisition Corporation (Nov. 2019) (targeting healthcare and healthcare-related industries)

— Arya Sciences Acquisition Corp. III (Aug. 2020) (targeting life sciences and medical technology sectors)

— BCTG Acquisition Corp (in registration) (targeting biotechnology sector)

— Brookline Capital Acquisition Corp. (in registration) (targeting life sciences industry)

— Chardan Healthcare Acquisition 2 Corp. (Apr. 2020) (targeting healthcare industry)

— CHP Merger Corp. (Nov. 2019) (targeting healthcare services, healthcare information technology, supply chain management, medical technology, medical devices and diagnostics)

— CM Life Sciences, Inc. (Sept. 2020) (targeting life sciences industry)

— Deerfield Healthcare Technology Acquisitions Corp. (July 2020) (targeting the entire healthcare industry, including services, therapeutics, devices, diagnostics and animal health and services)

— DFP Healthcare Acquisitions (Deerfield) (March 2020) (targeting the entire healthcare industry, including services, therapeutics, devices, diagnostics and animal health)

— Health Sciences Acquisitions Corporation 2 (Aug. 2020) (targeting biopharma and medical technology sectors)

— HighCape Capital Acquisition Corp. (in registration) (targeting the entire life sciences industry, including therapeutics, devices, diagnostics and animal health)

— LifeSci Acquisition Corp. (March 2020) (targeting healthcare innovation, including in biopharma, medical technology, digital health, and healthcare services sectors)

— Panacea Acquisition (July 2020) (targeting biotechnology sector)

— SC Health Corporation (July 2019) (targeting “high-end healthcare” or “healthcare delivery assets” in the Asia Pacific region)

— Therapeutics Acquisition Corp. (July 2020) (targeting biotechnology sector)

Targeting a Number of Industries, including Healthcare/Life Sciences:

— Capstar Special Purpose Acquisition Corp. (July 2020) (targeting consumer, healthcare, technology, media or telecommunications industries)

— Galileo Acquisition Corp. (Oct. 2019) (targeting consumer, retail, food and beverage, fashion and luxury, specialty industrial, technology or healthcare industries in Western Europe)

— GS Acquisition Holdings Corp II (June 2020) (targeting consumer, healthcare, technology, media or telecommunications industries)

— Hudson Executive Investment (June 2020) (targeting financial services or healthcare industries)

— Longview Acquisition Corp. (May 2020) (targeting healthcare, industrials, consumer, media and other industries)

— Starboard Value Acquisition Corp. (in registration) (targeting technology, healthcare, consumer, industrials and hospitality & entertainment industries)

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Going Public via SPAC Business Combination

— A SPAC business combination combines elements of a public company M&A transaction, private company M&A, and a traditional IPO

— Notable differences relative to traditional IPO process include:• Valuation is negotiated between sponsor and the private company• Flexibility in transaction structuring, especially as it relates to the mix of transaction

consideration and as to tax matters • Investor engagement and communications• Use of projections, forecasts and other forward-looking information (e.g., Rule 425

and/or Rule 14a-12) • Use of PIPEs, forward purchase commitments and other financing arrangements to

validate transaction, backstop redemptions and ensure sufficient working capital• Redemption rights and shareholder approval process• Sponsor promote and warrants

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Going Public via SPAC Business Combination – Key Negotiation Points— Transaction Structuring:

• Valuation • Transaction consideration (e.g., equity roll, cash consideration, milestone payments, earnouts (expressed as

daily VWAP stock performance hurdle for 20 out of 30 trading days over the earnout period, etc.))• Transaction structure (e.g., merger, stock purchase, up-C structure, holdco reorganization, redomestication,

dual class stock structure, etc.)• Management, board of directors and other governance matters (frequently significant ongoing management

and/or board role played by target management and/or founders)• Minimum cash condition after giving effect to redemptions and payment of transaction expenses (on top of net

tangible assets condition required to avoid application of SEC’s penny stock rules)• Recourse, if any, to target shareholders (where seen, tends to resemble private company M&A market terms,

including the use of reps and warranties insurance and use of share-based escrows that are generally the sole and exclusive source of recovery, except for fraud)

• Additional financing, if any (PIPE, pre-existing forward purchase commitment, backstop, debt financing, etc.)• For target companies backed by PE firms, PE sponsors’ post-closing equity ownership has tended to be quite

high due to a combination of equity roll and PIPE involvement

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Going Public via SPAC Business Combination – Key Negotiation Points— Founders’ shares and warrants – SPAC founders may be asked to transfer, forfeit or vest a portion of

their founders’ shares and/or warrants (including, in the reverse earnout context, i.e., if share value underperforms over time)

— Lock-ups and registration rights – Sponsor/SPAC insiders are customarily subject to post-business combination lock-ups; lock-ups are often negotiated with target shareholders and, in some cases, PIPE investors or other equity financing sources (can be time based, stock-price based, or both); insiders, holders of privately placed securities and warrant holders will typically have registration rights

— Executive compensation arrangements and equity plans— Tax considerations— Strategy with respect to public warrant overhang, including tender offer(s)— HSR and any other required governmental approvals and third-party consents— Transaction expenses (generally both sides pay their own, unless transaction closes, in which case

buyer may pay)13

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Going Public via SPAC Business Combination – Selected Other Considerations— Target needs to be IPO ready, including having required PCAOB audited financial

statements and ability to comply with ongoing public company reporting obligations and stock exchange listing and governance requirements

— Managing redemption risk— Required shareholder approvals (in addition to any required approval of SPAC

shareholders, required approvals of target need to be assessed) — IR strategy, including investor and research analyst engagement, and turnover of

shareholder base from SPAC IPO investor base to fundamental and long-term investors— Target entities generally have no recourse against the funds in the SPAC’s trust account

(including for break fees) and may be unable to seek damages— Transaction expenses can be significant (costs can be comparable to or greater than

IPO transaction expenses) and time to execute transaction can be comparable to the time required to execute an IPO

— If SPAC is approaching its expiration date, timeline needs to be managed with that deadline in mind, and companies may be able to improve deal terms 14

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Going Public via SPAC Business Combination – Public Company Considerations

— SPACs are considered “ineligible issuers” who are not entitled to use a free writing prospectus or any graphic communications (such as an electronic roadshow) in securities offerings within three years of a business combination

— Rule 144 is unavailable until one year after the filing of the “Super 8-K” following the closing of the business combination

— Cannot be WKSI for three years following business combination— SPACs cannot use Form S-8 to register securities issued under equity plans until 60

days after completion of the business combination — Ineligible to use certain communications safe harbors under Securities Act or to use S-1

incorporation by reference — SEC comment letters issued in 2020 reflect recent SEC staff position that SPACs need

to wait a full 12 months post-business combination before using a short-form registration statement on Form S-3

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Illustrative Timeline of SPAC Business CombinationSEC Filings / ReviewPre-Announcement

Proxy Solicitation / Redemption Period ClosingAnnouncement

Weeks 1 - 6 Week 7 Weeks 8 - 18 Weeks 18-21 Weeks 21-22

• Kick off transaction process• Due diligence• Negotiate and sign letter of intent• Draft and negotiate business

combination agreement• If not already commenced, begin

preparing audited financial statements

• Commence work on proxy/registration statement

• Prepare investor presentation and formulate IR and analyst outreach strategy

• Assess SPAC’s financial ability to complete deal; obtain any additional required financing commitments (e.g., a PIPE, debt financing, etc.)

• Execute business combination agreement

• Announce signing of business combination agreement

• File 8-K containing transaction documentation, announcement press release and investor presentation

• Host investor call• Communications

subject to Rule 425/Rule 14a-12

• File proxy / registration statement with SEC

• SEC to provide comments (4 weeks)

• Resolve SEC comments (4-6 week period after receipt of initial SEC comments)*

• Schedule shareholder vote

• Print and mail final proxy materials to shareholders

• Proxy solicitation / redemption period

• SPAC shareholders to deliver redemption election

• Shareholder vote• Close transaction, any

related financing and effect any necessary redemptions

• File “Super 8-K”

16* Time to resolve SEC comments can be shorter or longer, depending on extent and nature of comments.

• PIPE Marketing (generally two weeks prior to signing)

• Investor engagement is generally an ongoing exercise, continuing from signing until the redemption deadline and shareholder meeting

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Venture Capital Perspectives on the SPAC Market

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Venture Capital Perspectives on the SPAC MarketUnderstanding the sponsor’s perspective:— Pedigree – tier 1 dedicated biotech investors have issued SPACs— Conviction – allows for considerably larger bets— Control – both in terms of deal structure and proforma company— Value – capture more value for public market validation

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Venture Capital Perspectives on the SPAC Market

Crossovers: become asymmetric— Plan – get large exposure to near-public companies at a discount— Reality – negative selection, cut back on hot deals and expected to support cold onesIPOs: Further evolution of “Series I”— Curate your own partner shareholder list, remove the banks and “tail”— Pricing – control the pricing process rather than rely on capital markets— Align the IPO process with company and shareholder interests

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Understanding the sponsor’s perspective: dissatisfaction with IPO/crossover process

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Venture Capital Perspectives on the SPAC MarketSeller considerations— Positives

• Curated shareholder lists ready for public market• Low chance of becoming an “orphan” post IPO• Reduce the ongoing financing risks – combine B & C with PIPE as crossover• Projections – ability to tell story• Capital – ability to raise more capital than IPO• Timing – quicker time to market and ability to go earlier

— Negatives• Valuation, valuation, valuation• What is the discount vs. regular IPO in various market conditions?

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Venture Capital Perspectives on the SPAC Market

Validation: are biotech SPACs here to stay?— Types of issuers – tier 1 sponsors have issued, some repeatedly— SPAC IPO buyers – dedicated and specialized investors vs financial buyers— Sizing and pricing – continues to improve including lack of warrants— Aftermarket trading – units trading above issue without announced deals— De-SPAC validation – Arya/Cerevel size of deal and Bain

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Financial Advisor Perspective on the SPAC Market

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Observations on Current SPAC Environment

YTD 2020 SPAC issuance of >$30B – already over double 2019 full-year issuance

– Including largest SPAC IPO ($4B) recently priced by Bill Ackman of Pershing Square

~$40bn+ in available SPAC cash in trust – translates to over $200B in acquisition capacity

SPAC underwriters now mainstream among banks including Goldman Sachs, Morgan Stanley, Bank of America, Credit Suisse, UBS and Citi

Market for operating company targets has become more diverse

– Healthcare, Technology, Automotive, Fintech

Initial SPAC investors and private placement investors have broadened beyond hedge funds to mutual funds (e.g., Fidelity, T. Rowe Price, Franklin, etc.)

Recent SPAC merger activity driven by:– Increased value of pricing certainty in volatile market and near-term uncertainty (i.e. upcoming election)

– Increased quality of sponsors (Fortune 500 executives plus private equity such as Apollo, TPG, Fortress)

– High quality of targets – Nikola, Virgin Galactic, MultiPlan – that have resulted in strong post-merger trading and overall investor following

– Sophisticated sellers to SPACs – Hellman & Friedman, General Atlantic

SPAC economics have narrowed – competitive relative to traditional IPO and in some cases may be superior to an IPO when considering size of capital raise

Market continues to evolve increasing attractiveness relative to traditional IPO – for e.g., Pershing Square SPAC has no founder shares and is solely structured for SPAC sponsor to receive economics through warrants

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Comparison of Key Attributes – SPAC vs. Traditional IPO

SPAC TRADITIONAL IPO

Price Certainty

High Structured as a merger Price is negotiated and fixed

Medium Subject to market conditions and investor

interest based on underwriter book build

Can change on day of pricing

Proceeds High degree of certainty on cash raised Ability to increase size during SPAC merger

through concurrent PIPE and / or convertible note

Potential for underwriters to decrease size based on book building

Ability to upside based on demand plus greenshoe

Closing Risk

Low SPAC shareholder vote required and most often

received Voting agreements and non-redemption

agreements with SPAC sponsor and certain SPAC shareholders increase closing certainty

Closing typically subject to SPAC having minimum level of cash after any redemptions

Medium Subject to market conditions that may change

between filing and pricing IPO can be “pulled” at any time up to pricing

Cost / Dilution Cash cost: Dilution:

(Sponsor & warrants)

3% to 4%~20% of SPAC value

Cash cost: Dilution:

6% to 7%15-25% of company (assuming all primary)

Timing 4-6 months 6+ months

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Attributes to Consider in Evaluating SPAC Candidates

Relative size ($ amount in SPAC trust relative to target equity value)

Quality of sponsor / sponsor track record / industry and capital markets experience

Private placement execution experience and investor support

Warrant strike price, timing of redemption and other warrant redemption terms

Sponsor promote economics

Vote features for approval and redemption for cash

Expiration date

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Benefits and Considerations for Private Companies

What can be the benefits of a SPAC transaction?– Speed to public markets

– Ability to lock in valuation but with bounds

– Can raise significant amount of capital

– Ability to compress late-stage financing and IPO into one transaction

What are potential considerations?– Volume of completed healthcare SPAC transactions much lower vs. traditional IPOs and even reverse mergers

– Potential to compress crossover to IPO timeline without SPAC

– Best not to eliminate other financing and strategic options too early:

Traditional late-stage VC / crossover pre-IPO financing

Debt or other “non-dilutive” financing options

Sale of company, licensing / collaboration, merger with public company

– Public company readiness?

Communications and Capital Markets Advisory Perspective on the SPAC Merger Process

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Optimize the Messaging and Positioning of the Company Story– Articulate value proposition to maximize impact with investors

Research Analyst Targeting– Important to begin this process well in advance of the merger announcement

PIPE Financing – PIPE Subscription Agreement must be finalized in advance of Merger Agreement announcement

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Following LOI Signing

Key Company Considerations –Prior to Merger Announcement

PR Strategy– Media Formulate goals for media coverage – what determines success? Identify press outlets for embargo and interview targets Determine plan for handling of in-bound calls

– Press Releases Distribution list, including investors and Research Analysts Press release drafting and approval process Delegate PR issuance responsibility

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Following LOI Signing

Key Company Considerations –Prior to Merger Announcement

Definitive Merger Agreement– File Merger Agreement concurrently with merger press release

Investor Presentation and Conference Call– Drafting for presenter script is critical – transcript will be publicly filed

Projections – Must take into account metrics and disclosure that will be provided as a public company on an ongoing

basis

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Key Company Considerations – Merger Announcement

Proxy Statement– Business Section tends to be a critical path item

Investor Interactions– Targeted 1x1s; ongoing diligence/relationship-building

Analyst Day– Initial business due diligence, followed by financial diligence

Media Strategy– Listing Day activities and post-listing communications strategy

Public Company Preparation– Earnings press releases, call scripts, Q&A rehearsal

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Key Company Considerations – De-SPAC Process

Continued Shareholder Transition to Fundamental Investors

Continue to evolve key messaging and positioning as the company grows

Ensure consistency of message in all settings

Develop a forward calendar of conferences and non-deal roadshows

Execute on your plan!

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Key Company Considerations – Post-Merger Close

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Other IPO Alternatives

— Direct listings— Traditional reverse mergers

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Q&A

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Questions

Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom office is operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at https://www.sra.org.uk/solicitors/handbook/code/. A list of partners and their professional qualifications is available for inspection at our UK office. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2004-2020 Wilmer Cutler Pickering Hale and Dorr LLP 35

Bernie CooneySenior PartnerFlagship Pioneeringbcooney@flagshippioneering.com

Jason ForschlerPartnerPerella Weinberg Partnersjforschler@pwpartners.com

Marisa FrackmanManaging DirectorWestwicke Capital Marketsmarisa.frackman@westwicke.com

Sameer KhambadkoneManaging DirectorWestwicke Capital Marketssameer.khambadkone@westwicke.com

Glenn PollnerPartnerWilmerHaleglenn.pollner@wilmerhale.com

Keith TrammellPartnerWilmerHalekeith.trammell@wilmerhale.com

Alan WilsonSenior AssociateWilmerHalealan.wilson@wilmerhale.com