SomaLogic is joining the growing number of companies going public via special purpose acquisition companies. The Boulder, Colorado-based health care company plans to merge with CM Life Sciences II Inc. (CMIIU, Financial), whose lead entity is Casdin Capital LLC, a life-sciences investment group with $1.3 billion in assets under management.
The deal is expected to close sometime in the third quarter. When it does, SomaLogic will trade under the ticker SLGC. Since the merger's announcement, CM Life Sciences shares are up just more than $1 to about $14. The company went public in late February at $10 a share.
SomaLogic develops platforms to identify thousands of proteins in a patient's blood or urine that may indicate illnesses or future health problems and suggest potential treatments via machine learning. CEO Roy Smythe previously said the company may extend its services to doctors and maybe even individuals.
Online publication The Daily Camera reported that SomaLogic's primary source of revenue is coming from Big Pharma members Amgen Inc. (AMGN, Financial) and Novartis (NVS, Financial), which use the company's system to measure patient samples. Strategic partners include Tokyo-based Otsuka Holdings Co. Ltd. (OTSKY, Financial) and Agilent Technologies Inc. (A, Financial), whose home is in Santa Clara, California.
SomaLogic raised $214 million in funding last year. The merger values the company at more than $1.2 billion before going public, vaulting it into the rarefied air of unicorn status.
The company is looking to move into the huge market for clinical diagnostics, which has an estimated value of about $40 billion, according to an article in BioWorld. To date, the company has introduced 10 tests and has more than 100 on tap. It's one of several biotechs looking to understand the human body by looking at proteins rather than DNA and RNA.
Investors considering investing in Soma may want to back up and take a look at the bigger picture. Some on Wall Street are sounding the alarm about SPACs, contending they're a bubble that's about to burst. A blogger on Yet Another Value went on to call the SPAC bubble "the silliest bubble we'll ever see," wondering why investors get excited to buy into an asset class with a proven track record of failure.
The statistics back him up. Mergers and Acquisitions reported SPACs launched in 2019 and 2020 have mean returns of -12.3% and -34.9% over six months and 12 months following merger announcements.
Despite their underwhelming performance, the SPAC express shows no signs of slowing down. A total of 219 SPACs raised a record $73 billion in 2020, up more than 450% from the previous year. And in the first three months of 2021, there were $166 billion of deals across some 400 SPACs, according to Market Insider.
SPACs do offer some advantages, but they're not nearly as great as they are for institutional investors. And individuals shoulder more risk because SPACs are set up to benefit the wealthy and institutional investors.
Dilantha De Silva doesn't think there's a bubble—yet. In a mid-February GuruFocus article, he said one might be brought on if fund managers with a lousy track record (or no track record) start raising funds in the market, creating a bubble that will eventually burst if regulatory intervention fails to stop retail investors from investing in these businesses. He wrote, "There does not seem to be a bubble just yet in my opinion, but things could soon get out of hand similar to how it has happened time and again during periods that preceded market crashes."
He thinks if the bubble does pop, it will affect the entire market, with many investors taking their money out of the stock market and trust deteriorating to the levels not seen since the dot-com bubble and the global financial crisis.
Disclosure: The author has a position in Amgen.
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