Biotech start-ups turn to reverse mergers to fast-track listings
Life sciences companies take advantage of the leftovers of a pandemic-era IPO frenzy to fast-track listings
The number of biotech companies going public through reverse mergers has risen almost sixfold this year, as promising start-ups take advantage of struggling groups on the Nasdaq to fast-track their stock market debuts.
Twenty-three biotechs have announced they are pursuing reverse mergers this year, according to investment bank William Blair — up from four last year. That surge has come despite a revival in biotech IPOs, which have also risen to 23 this year, from 12 in 2025.
In these deals, a private biotech can go public by merging with a listed company, usually one that has suffered a significant setback such as the failure of a main drug candidate, enabling it to bypass the traditional IPO process.
More biotechs have turned to this type of deal in the past year thanks to a ready supply of listed merger candidates following a pandemic-era jump in biotech IPOs and a growing number of sophisticated investors willing to finance them.
“Historically, going public through reverse mergers was viewed as a lesser option,” said Brian Rosenzweig, a capital markets partner at law firm Covington. “But much of that view has changed [as] the market for reverse mergers has become more sophisticated.”
Following a frothy market for life sciences listings during the pandemic, a number of listed biotechs have since suffered clinical setbacks, leaving them open to a tie-up. There were 51 biotech IPOs in 2020 and 70 in 2021 before the market dried up the following year, according to FactSet data.
Listed targets have included Cyclerion Therapeutics, which went public in 2019 but suffered a string of clinical setbacks, including the failure of its sickle cell treatment, and attempted unsuccessfully to pivot to new areas. The company last month completed a reverse merger with Korsana Biosciences, a biotech focused on neurodegenerative diseases.
Korsana, whose investors now own the majority of the merged group, raised $380mn in so-called pipe financing from groups including Fairmount and RTW Investments.
The growing involvement of sophisticated life sciences investors such as Fairmount has also helped reverse mergers shed their reputation as a last resort for weak companies to list.
“Most of the specialised, sophisticated investors who drive the books of demand for traditional IPOs are now the same group of investors driving [financing] for reverse mergers,” said Rosenzweig.
Those investors have helped to boost the sums raised in such deals. In July private biotech Caldera Therapeutics secured $278mn from investors including Bain Capital Life Sciences, Atlas Venture and Janus Henderson to merge with Synlogic. A month later Obsidian Therapeutics raised $350mn from Atlas and Janus Henderson among others to merge with Galera.
Lawyers and biotech executives said some companies were choosing reverse mergers even as the IPO market picked up, attracted by their relative speed and greater certainty over financing. Unlike a listing, where investor demand and pricing can be unpredictable, reverse mergers allow biotechs to agree valuations and secure financing upfront.
Rita Sobral, a partner at law firm Cooley who has advised biotechs on reverse mergers, said: “The moment you enter into the business combination agreement that has [financing] locked in, you have deal certainty.
“You are less dependent on an IPO window to be available. You focus on locking in the valuation, which is something you don’t have the benefit of doing via the IPO process upfront.”
Jonathan Violin, Korsana’s chief executive, told the FT that the company “realised it doesn’t matter what path you take . . . What matters is the strength of the company and the strength of the science and how well a company is capitalised.
“The old pejorative view of reverse mergers was a mistake,” he added. “The traditional IPO is a long process and there are all kinds of risks associated.”
The recovery in traditional biotech IPOs has also given promising companies a route to market following a years-long drought, however. Recent listings include Alamar Biosciences, whose shares have risen about 15 per cent since it went public in April.
One life sciences investor stressed that companies would continue to evaluate both reverse mergers and IPOs, cautioning that after a string of such deals, the number of attractive merger candidates — cash-rich companies with clean balance sheets and no ongoing litigation — was dwindling.
“A lot of things went public during the pandemic that probably shouldn’t have,” he said. “Most of the clean shells are taken. But if you’re a high-quality biotech, the traditional IPO is still open.”