Alvotech SPAC Is Coming—Might Be a Good Investment, Just Not Yet

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Dec. 8 2021, Published 10:31 a.m. ET

This year's SPAC infusion has left some investors wanting more—namely, more returns. BuzzFeed's disappointing merger debut reminded investors that 97 percent of 300+ pre-merger SPAC deals were trading lower than their $10 starting price in the first three quarters of 2021, which makes post-merger returns even harder.

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Now, biosimilars company Alvotech Holdings SA plans to go public via a SPAC. Many investors think that they need more information before committing to another special purpose vehicle.

Alvotech will go public in a $2.25 billion SPAC merger.

Alvotech is the new target of blank-check firm Oaktree Acquisition Corp. II (NYSE:OACB), a product of Oaktree Capital Management. When combined, the company will be worth about $2.25 billion.

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As part of the deal, Alvotech will receive $450 million in gross proceeds, $150 million of which stems from a private investment in public equity (PIPE). Institutional investors Temasek, CVC Capital Parkers, and Suvretta Capital are backing the PIPE deal.

OACB went public as a blank-check firm in September 2020. About 15 months after its debut, the firm identified a target company within the two-year timeframe most SPACs are bound to.

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What's Alvotech's business model?

Alvotech is based out of Iceland and focuses solely on biosimilar medicines—a type of biological product that basically copies existing medicines. When original patents expire, biosimilar companies like Alvotech hop in to fill the gap with generic medicines.

Alvotech works by developing partnerships with drugmakers and already has contracts in 60 countries. Teva Pharmaceutical Industries and Stada are two companies Alvotech currently works with.

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Because the companies' products don't feature any clinical differentiators from original drugs, the products are usually approved by the FDA.

Alvotech's books look strong, but the company isn't perfect. According to Alvotech, it currently retains $1.15 billion in license fee commitments, although 80 percent of that value hasn't been paid yet. The FDA recently postponed a decision on its biosimilar drug for AbbVie's Humira after AbbVie's failed lawsuit against Alvotech. AbbVie claimed Alvotech stole trade secrets, but nothing came of it in court.

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Alvotech SPAC stock could be a good investment—but not yet.

Alvotech is poised to merge with OACB sometime in the first half of 2022. A lot can happen over the next six months, so it might behoove investors to wait and see if Alvotech retains its legal standing and whether the FDA finds issues with any of its biosimilars.

As of Dec. 8, Oaktree Acquisition II stock is trading at a decent price of $9.88 per share. The pre-merger SPAC stock peaked in February when Oaktree Capital filed for a $325 million IPO for its third SPAC iteration. The shares have since dropped about 10 percent.

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In a post-merger scenario, an Alvotech investment has potential. However, its recent FDA and lawsuit issues are a red flag. While the lawsuit is settled, Alvotech's Humira biosimilar hasn't been approved in the U.S. yet. In an already fickle SPAC market, any question could potentially push the stock's value down.

On the plus side, it's a pure-play in biosimilars, which is a good thing for anyone looking to target that niche sector.

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