In the law firms and investment banks that broker some of the world’s biggest biotechnology deals, a not-so-savory word is being thrown around behind closed doors.
Shells.
The more media-friendly term is “vehicle,” but both refer to a public company that gets much of its value simply from being public. Long dismissed by many top-tier investors, these companies are now the centerpiece of a niche business on Wall Street, where private drug developers are “reverse merging” into them to access all the perks that come with a stock listing.
And business is booming. Roughly two dozen reverse mergers involving biotechs have been announced so far this year, more than double the 10 seen across all of 2025, according to a list compiled by life sciences advisory firm JB Strategy Partners.
Reverse mergers are giving startups and their backers an unconventional way to capitalize on biotech's recent resurgence as well as a trove of medicines emerging from laboratories in China. For such a cash-intensive industry, where testing a single molecule can easily cost hundreds of millions of dollars, these deals offer a speedy route to the vast and deep-pocketed pool of investors only found on marketplaces like the Nasdaq.
The upswing comes even as initial public offerings — the more traditional path to Wall Street for young drugmakers — are themselves experiencing a rebound.
“The reverse merger move has just gotten so big,” said Tim Opler, a managing director in the Global Healthcare Group at Stifel. “There’s no question they’ve taken off.”
With billions of dollars of business on the line, dealmakers are fervently searching for shells that would be good candidates for reverse mergers. Some say there are early signs demand might outstrip the supply.
Any bottlenecks could ripple through the sector, affecting what companies get funded, what medicines get developed and what investors get the chance to buy in. A slowdown could also tarnish the newly improved image of the reverse merger, cutting its renaissance short and sending private companies back toward IPOs.
“If there are any pitfalls, it's in finding high-quality shells,” said Branden Berns, a partner at Gibson, Dunn & Crutcher.
Biotech reverse mergers spike in 2026
Reverse mergers come in different shapes and flavors. But at their core, they are deals between one private and one public company, where the former leverages the latter’s hard-won spot on the public markets.
Some involve “SPACs,” or special purpose acquisition companies, which are shells in perhaps the purest sense. They generally function like male angler fish: their basic purpose being to find a mate — an attractive private company — fuse with it through a merger, then cease to exist.
SPACs, though, have a spotty track record, and aren’t the most common form of a shell. More often, the perils of drug development cause once high-flying public biotechs to collapse and, from the rubble, become a stepping stone to a ticker symbol for a private company.
Historically, investors did not hold a positive view of reverse mergers. They associated these deals with private companies that didn’t have promising assets, that couldn't get an IPO done either at all or at a value their insiders found acceptable. Reverse merging was branded a pitiable last resort to raise money, a transaction between two washouts.
“The knee jerk reaction was to trade off,” said Daniel Lepanto, a senior managing director of healthcare mergers and acquisitions at Leerink Partners.
But that stigma has dissipated over the last few years, in large part because of the Philadelphia-based investment firm Fairmount Funds. Essentially, Fairmount polished up reverse mergers to give them the sheen of an IPO. The firm would first identify a “fallen angel,” or a public biotech that had been wrecked by setbacks, burned through its cash and had little left of value beyond its market listing.
Fairmount would then assemble a tight, often institutional group of investors to line up funding for whatever private biotech combined with the fallen angel. Those syndicates were a major departure from reverse mergers of the past. Being composed of sophisticated healthcare investors, they brought legitimacy. These deals didn’t have to be tie-ups between two desperate companies; they could be heavily financed bets from some of the sector’s biggest players.
This strategy proved enticing to investors, too. Compared to the IPO process, where many parties commonly fight over scraps of equity, a Fairmount-led reverse merger gave a narrow roster of firms the opportunity to negotiate for more meaningful stakes in an emerging company.
“There were reverse mergers before that were sponsored by well-known funds,” Opler said, “but they didn't become the dominant thing. Then all of a sudden, Fairmount made them the dominant thing.”
Fairmount first showed this model could work in mid-2023, by orchestrating a deal between Spyre Therapeutics and Aeglea Biotherapeutics along with a $210 million private placement from a catalog of big-name healthcare investors like Fidelity Management & Research, Venrock, Perceptive Advisors and Citadel’s Surveyor Capital. The firm has since helped shepherd half a dozen or so other biotechs to the Nasdaq through reverse mergers. Altogether, about $2 billion in private financing has accompanied Fairmount-backed transactions.
The most recent of those is Avere Therapeutics, an inflammation-focused startup that in July disclosed plans to merge with a company named NextCure. Avere’s management team came with an established resume, having previously steered the liver disease drugmaker Akero Therapeutics from early stages, through a $92 million IPO and on to a $4.7 billion sale to Novo Nordisk. Concurrent with the reverse merger announcement, Avere said it had raised $320 million from a laundry list of institutional investors. Less than a month later, it secured $500 million more through another private stock offering.
Had all that capital gone down a different path, it could have made for the largest biotech IPO ever, noted Ryan Murr, a partner and co-chair of Gibson Dunn’s Life Sciences Practice Group. It instead going toward a reverse merger is “kind of breathtaking.”
More investors are now finding success, such that the complexion of reverse mergers has totally changed. Just a few weeks ago, Ambros Therapeutics, a pain drug developer co-founded by entrepreneur and former presidential candidate Vivek Ramaswamy, announced a reverse merger along with $150 million in funding from a certain kind of private financing known as a PIPE.
Showcasing a different outcome, Candid Therapeutics earlier this year said it intended to merge with Rallybio, and had aligned $506 million from a parallel financing. Candid was run by industry veteran Ken Song, who built the company around autoimmune disease drugs in-licensed from Chinese biotechs. But before the deal completed, Candid accepted a $2 billion buyout offer from Belgium-based UCB. How that story played out “opened up everybody's eyes as to what was possible with this type of transaction,” said Carlos Ramirez, a partner at the law firm Cooley.
“It’s readily apparent the perception is night and day different,” said Connor Bernstein, a managing principal at JB Strategy Partners.
There is evidence the reverse merger story brightened well before most investors noticed. In the winter of 2022, for example, when the biotech IPO market itself was frozen, blood disorder specialist Disc Medicine fused with struggling Gemini Therapeutics. Disc shares have quadrupled since then, going from almost $20 to nearly $80 as of early September.
A report from Stifel found that, from 2022 through mid-2024, biotech reverse mergers were substantially outperforming their IPO counterparts. In 2023, the share prices of reverse merger companies were up 150% on average, versus 7% for those that went public the traditional route.
The idea that reverse mergers aren’t good deals has not been supported for “quite some time,” Ramirez said. “Yet, people kept saying it, so it stayed true until now.”
“It's not that the data shifted; it's that the anecdote shifted,” he added.
That reckoning explains why, even with the IPO window as open as it’s been in years, reverse merger activity remains high. These deals “are no longer simply filling a gap when the IPO market is closed," according to a report released this week from the investment bank Raymond James.
Cooley partner Rama Padmanabhan calls this the “second generation of reverse mergers,” defined by a “super robust” PIPE market of credible investors who value these distressed public biotechs for more than just the cash they still have on hand. That’s a very different landscape than even a few years ago, when firms like Tang Capital and Xoma Royalty made a business out of buying up cash-rich “zombie” biotechs.
Specifically, Tang and Xoma took advantage of valuation gaps by snapping up drug developers whose cash and remaining assets were worth more than the market gave them credit for. They would then return much of that value to shareholders, while trying to squeeze some out of anything left over, such as drug royalty rights. “Liquidation as a service,” as it’s known in finance circles, became an appealing option for investors of these now-flailing companies who were desperate to claw back their losses.
Xoma has since been acquired, and the pace of zombie deals has slowed to a crawl. In their place, this newer generation of reverse mergers is allowing drug companies to sprint to the public markets through deals that, in many cases, are quickly handing their beneficiaries billion-dollar-plus valuations.
“It turns out we really haven't heard horror stories,” said Padmanabhan. “People are not scared about the reverse merger world anymore.”
With fear in the rearview, investors are reveling in the structural advantages reverse mergers hold over IPOs. A big one is certainty. The syndicates involved in these deals know they can secure their desired stakes in the new company. And because so many terms are hammered out up front — valuation, financing and ownership — they’re less at the whim of biotech market mood swings.
Another is speed. Reverse mergers typically close in a few months because they bypass much of the IPO process, including the roadshow and bookbuilding that protract an offering into a yearlong ordeal. And in rarer cases, companies can do a “simultaneous sign and close” to shave the timeline down one to two months further. Cooley has worked on three such deals this year.
“The perpetual desire to move quickly where possible, that's what's driving this whole phenomenon,” said Murr, of Gibson Dunn. “It allows you to strike while the iron is hot.”
The newfound interest has flooded the inboxes of financial and legal advisors. Murr, for one, said he’s noticed a “real acceleration” of funds hoping to copy the Fairmount recipe.
And according to Ramirez, boards of private biotechs are asking for help preparing for all three buckets of go-public deals — an IPO, a reverse merger and a SPAC — at the same time to keep their options open. “The IPO, I think, will always be the gold standard for going public,” he said, “but reverse mergers are definitely being discussed, and not as the plan B or C.”
Well-known institutional firms are flocking to reverse mergers
The rate-limiting factor may soon be the supply of quality shells. The most desirable, experts say, are those unencumbered with issues like drawn-out patent litigation or thorny licensing agreements.
But, just like the beach, the cleanest, prettiest shells are the first to get snatched up. The work required to get the others into merger shape can be daunting. Lepanto estimates there are hundreds of potential vehicles “nobody's touching” due to balance sheet and capital structure problems.
“If you're a biotech investor today, your appetite for taking unnecessary risk is very, very low,” he said. “To walk into one of these public companies and discover a litany of liabilities, people just say, ‘Life is too short. There's no reason to do it. I can just go public versus dealing with all this complexity.’”
There are reasons to believe the supply constraints might naturally work themselves out. The risky nature of drug development produces a steady stream of down-on-their-luck companies at any given time. Some firms are also capitalizing on the moment by advertising their ability to either track down move-in-ready shells or refurbish ones on the cusp of being merger-friendly.
“In general, I don’t think the supply of shells is a big issue,” Opler said.
Still, inventory could be stretched thinner thanks to a massive wave of experimental drugs coming out of China’s burgeoning biotech ecosystem. The “natural place” for those assets to land, according to Murr, is a vehicle that goes public in the U.S. as soon as possible.
That’s already happening. Prior to its purchase, Candid amassed a pipeline of drugs through licensings deals with Chinese biotechs. Avere grabbed an immune system-regulating therapy from Hansoh Pharmaceutical, a China-based firm that also helped take the company public.
Fellow immunology specialist Caldera Therapeutics as well as gene editing startup Serapha Bio were formed around China-originated assets, too. They each announced reverse mergers this summer.
“Many licensors in China would rather have some equity slice in the entity that's taking the license,” Murr said.
Such growing demand may force dealmakers to get creative. For instance, a shell can be made through a more obscure approach where, instead of running an IPO, it effectively becomes public by filing a “Form 10” document with the Securities and Exchange Commission.
This filing doesn’t raise money on its own, nor does it provide a stock listing. Rather, it establishes an easy-to-slot-into public structure by registering a class of securities with the SEC. Intra-Cellular Therapies, a brain drugmaker that sold to Johnson & Johnson for almost $15 billion, originally went public by reverse merging with a Form 10 company.
Normally, such a deal would trigger “seasoning” requirements that mandate a company must trade on minor exchanges for a year before applying to join the Nasdaq. However, a Form 10 company can use a sufficiently large underwritten offering as a loophole to skirt the waiting period and fast-track its way to that exchange.
Companies and their advisers have also started combing lower tier, “over-the-counter” public markets, hoping to find clean, suitable shells. Obsidian Therapeutics did just that with oncology-focused Galera Therapeutics, which fell on hard times after the Food and Drug Administration rejected its flagship medicine in the summer of 2023.
Galera subsequently lost its Nasdaq listing and ended up on an OTC marketplace, where it sputtered along for two years until Obsidian agreed to combine.
Caldera’s merger followed a similar blueprint.
“Like anything on Wall Street,” Lepanto said, “when you have a lack of supply, people come along to create more.”