Should You Invest in Humacyte Before the SPAC Merger?

Investors can get an early stake in Humacyte, the biotech developing human acellular vessels, by buying shares in Alpha Healthcare Acquisition Corp. (AHAC), the special acquisition company (SPAC) that plans to merge with Humacyte. In this video from Motley Fool Live, recorded on Feb. 22, Fool.com Contributors Brian Orelli and Keith Speights discuss Humacyte's prospects and whether it's more appropriate for a portfolio or a watch list.

Brian Orelli: Moving onto Humacyte, the company is going public through a merger with a special acquisition company (SPAC) called Alpha Healthcare Acquisition. Humacyte is developing a technique to take donor tissue and develop them into blood vessels that can then be used for a variety of uses, including something like dialysis or peripheral artery disease or coronary artery bypass grafts. They've done five phase 2 studies already and they're currently in three different phase 3 studies for different diseases.

The SPAC is run by Rajiv Shukla. That's the same person that brought DermTech public through the SPAC, so he's got experience with this process. Humacyte will get $255 million at closing, up to $100 million from the SPAC. Then, investors have pledged another $175 million through a PIPE [private investment in public equity] at $10 per share. Most of the existing investors that participated in the PIPE, including Fresenius Medical Care (FMS 2.21%), which is involved, which is also a partner with Humacyte and they're developing a dialysis -- for the dialysis indication. Shares were over $10 at the close on... we're just over $10 at the close before the deal was announced and then they closed Friday at $13.40, which I think puts it at about a $1.1 billion valuation. Any thoughts on the Humacyte going public?

Keith Speights: Yeah. First of all, I've been really impressed by Rajiv Shukla's ability to identify very promising healthcare companies to take public through the SPAC route. Shukla led M&A at Pfizer in the past. He definitely has some expertise in this area. I own DermTech. There's DNTK, that's another one that you mentioned that he took public through the SPAC route. I think that company has a lot of potential.

I was not previously aware of Humacyte until this deal emerged. But as I was doing some digging into the company over the last couple of days or so, very interesting, has some intriguing technology. Humacyte estimates that they could hit $12 billion in peak annual sales. What they're doing is they're developing what they call a human acellular vessels or HAVs, and these are engineered blood vessels, basically. Like you said, Brian, they have several phase 3 studies underway, and those studies, I think, are expected to be completed in 2023. There's still a few years before we will see those final results from those late-stage studies, lots of uses for these HAVs, these human acellular vessels. They can be used in vascular trauma, that can be used in peripheral arterial disease, diabetes, and other uses.

One thing I noticed in digging into Humacyte was that Fresenius Medical Care, ticker there's FMS, they're a leading dialysis-services provider. They own a 19% stake in Humacyte, so they really see the potential of this company in the dialysis market with having these artificial blood vessels. Because in dialysis, they have to basically stick into the blood vessel for the dialysis. Fresenius sees a big opportunity here, and Humacyte is also looking at some other possibilities for using their technology and perhaps bio-engineered lungs and tracheas and esophagus, that kind of thing. This is an intriguing company. I'm not in that position where I would say, "Okay, yeah, go buy the SPAC." But it's one I'm going to personally do some more research into to see exactly what opportunities Humacyte might have and take a hard look at it.

Orelli: I feel like we have some time. The phase 3's not planning on reading out until 2023. It's one of those where you can definitely just put it on your watch list and go wait for the development and get some time to read through the quarterly reports to get a better feeling on the company.