A Star-Laden Biotech SPAC Worth Considering

In this video from Motley Fool Live, recorded on March 22, Fool.com contributors Brian Orelli and Keith Speights discuss the prospects for Revolution Health Acquisition Corp. (REVH.U +0.00%). The healthcare-focused special purpose acquisition company (SPAC) is sponsored by ARCH Ventures and General Catalyst and has some solid leadership at the helm, including former CEO of Vertex (VRTX 0.42%) Jeffrey Leiden who serves as the SPAC's chairman.

Brian Orelli: Moving on to Revolution Health Acquisition Corp, they IPOed last week. This is yet another special acquisition corporation (SPAC).

I'm generally not interested in handing my money over to someone else to invest, which is basically what you're doing when you invest in a blank check SPAC company before the merger is announced. I would certainly invest in SPAC between the announced merger and the actual merger if I thought there was a good valuation play there.

But this one has me intrigued. It's formed by ARCH Ventures and General Catalyst. Jay Markowitz, the former analyst and Regeneron senior vice president who is now at ARCH, is going to be the CEO. Then Jeffrey Leiden, who we both know because he is the former CEO of Vertex, and we're both shareholders there. He's going to be the chairman. Then on the board is going to be Catherine Friedman, who's the chair of GRAIL, and Jennifer Schneider, who is the former president of Livongo before Teladoc (TDOC 1.37%) bought them. Bob Nelson from ARCH, of course, and Hemant Taneja from General Catalyst, they're obviously going to be involved. They are going to be looking for opportunities in mental health and in home-based care, possibly also data-driven care, population health, and various other chronic conditions. They're basically covering [laughs] and they invest in everything.

Keith Speights: Everything. [laughs]

Orelli: Anything and everything healthcare-related. What do you think of the lineup and are you interested in giving Leiden some of your money to invest?

Speights: [laughs] Brian, let me first say I agree with you. I'm not necessarily a fan of getting my money to these blank check companies. Hey, I would probably be very reluctant to give a blank check to a close family member, much less [laughs] some folks I've never met. Yeah, I'm very skeptical about the early-stage SPACs where they haven't announced a partner yet.

But I'm like you, I'm intrigued by this one. You're right. They have an all-star lineup on their management team, Board of Directors. They're going after a big opportunity here, I think. It's a tremendous opportunity to, I think, go create a Livongo Health type of digital health company focusing on mental health, if that's indeed what they really focus on and stay on that. I think if they focus on that niche and maybe home-based care as well, like you mentioned, those are both fast-growing markets that I think there's a huge unmet need.

I was looking just to see and get a picture of what the mental health market is in the US. Around $212 billion are spent each year on all aspects of mental health. That's a big market to target. Of course, aging in place is going to continue to be a growth story as more Americans age and they don't want to go to an assisted living facility or a skilled nursing facility. I think both mental health and this home-based care opportunities, I think both of them are really smart to go after. This SPAC has put together a great team. The question is what happens next? I'm not at that point to say, "Yeah, I would want to go buy this SPAC, but it definitely is one I want to watch."

Orelli: The thing I don't like is the mental health part because while it's a huge opportunity, running clinical trials for mental health is just really difficult because it's patient-based and there's always a huge placebo effect where a lot of placebo patients get better, even though they're on placebo. Really, I try to stay away from mental health just for that reason.

Speights: Yeah, from a biotech standpoint, I totally agree. It's a minefield. Now, if they focus more on digital health management, I was assuming they would go after something like a Livongo that does something along the mental health lines. Maybe I'm just imagining something that doesn't exist. But I think there might be some opportunities there. I agree with you on the drug space, that's a tough area to get into.

Orelli: Yeah. That makes more sense.