A SPAC, commonly known as a blank-check company, raises funds and goes public through an IPO first, then identifies target enterprises for merger, enabling the latter to obtain public listing status.

As a listing vehicle, SPACs boomed in 2020 and 2021, offering private biotechnology companies an alternative fast track to the secondary market with less regulatory scrutiny than traditional IPOs. They fell out of favor in subsequent years due to poor returns, but have recently regained momentum as IPO windows for biotechnology firms have largely shut down.

The resurgence of SPAC activity is partly driven by the return of seasoned sponsors with proven track records, among which RA Capital is a prominent player.

Over the past decade, RA Capital has launched two SPACs. One merged with Point Biopharma, a radiopharmaceutical R&D company later acquired by Eli Lilly in 2023; the other, Research Alliance II, priced its offering in 2021 but was subsequently liquidated.

In its latest securities filing, RA Capital outlined plans for "Research Alliance III", aiming to acquire or merge with a Chinese target company. The firm plans to sell 5 million shares at 10 U.S. dollars each in this SPAC to fund the initiative.

In structuring this new offering, RA Capital explicitly stated its intention to leverage promising clinical assets from China once again—a major and fast-growing source of drug licensing transactions. The institution noted in its IPO documents: "We believe comparable newly established companies will continue to emerge and may serve as suitable merger candidates."

Its historical investment portfolio includes Aiolos Bio, founded around an asthma drug licensed from Hengrui Medicine and later sold to GSK; Metsera, acquired by Pfizer for 10 billion U.S. dollars; and Candid Therapeutics, which is planning a reverse merger with Rallybio.

Recently, fellow biotech investment firm Cormorant Asset Management also completed a 150-million-U.S.-dollar IPO for its own blank-check company.

If SPACs provide Chinese biotechs with a capital pathway to Nasdaq, strategic R&D adjustments by MNCs have opened another door from the demand side.

In 2025, overall R&D spending by the world’s top 16 pharmaceutical companies dropped by 3.6%, with many slashing budgets and overhauling their R&D pipelines.

Johnson & Johnson cut R&D expenditure by nearly 15% to 14.7 billion U.S. dollars, primarily due to a 2023 restructuring of R&D investment priorities for its innovative drug division. Bristol Myers Squibb (BMS) reduced R&D spending by 11% to 9.95 billion U.S. dollars, linked to discontinued failed projects and strategic productivity programs. Pfizer’s R&D expenditure fell 4% to 10.21 billion U.S. dollars.

Merck & Co. reported a 12% year-on-year decline in R&D investment last year, attributing it to "reduced expenses for business development activities"—in other words, less funding for acquiring external pipelines. This does not mean Merck is scaling back its innovation layout; on the contrary, it is actively securing future growth engines beyond Keytruda via BD deals: acquiring Prometheus for 10.8 billion U.S. dollars in 2023 to obtain a TL1A antibody, and purchasing Verona Pharma for approximately 10 billion U.S. dollars in 2025 to strengthen its respiratory portfolio.

As MNCs concentrate internal R&D resources on a handful of core therapeutic areas, their demand for external innovative assets has surged. Boasting advancing R&D capabilities and differentiated technological layouts, China has become a critical supplier of such assets.

The Chinese innovative drug sector delivered an exceptional outbound performance in Q1 2026. The total transaction value and upfront payments matched the full-year levels of 2024 and surpassed 60% of 2025’s annual figures.

According to data from Yaozhidata, 42 outbound BD deals for domestic innovative drugs were sealed in Q1 2026, a year-on-year increase of 10.53%. The disclosed total transaction value reached 54.007 billion U.S. dollars, up 61.75% year on year, while disclosed upfront payments hit 679 million U.S. dollars, a year-on-year jump of 321.85%.

From a global perspective, the trend is even more striking. Since the start of the year, domestic innovative drug BD deals have accounted for 20% of global transactions and 75% of disclosed total value. Among the 21 landmark deals completed globally, 15 involved Chinese parties, representing over 70%.

In terms of technological tracks, alongside conventional fields such as small molecules and monoclonal antibodies (mAbs), cutting-edge segments including nucleic acid therapeutics, bispecific antibodies, and T cell engagers (TCEs) have seen robust BD activity. China leads the world in bispecific antibody development: nearly 70% of global bispecific pipelines in Phase III clinical trials or registration applications originate from Chinese pharmaceutical firms. In Q1 2026, the total licensing value of domestic nucleic acid projects exceeded the combined licensing volume of the past five years.

Liu Bowen, Vice Chairman of Healthcare Investment Banking for Asia Pacific and Co-Head of China Investment Banking at J.P. Morgan, previously noted that multinational pharmaceutical companies are increasingly inclined to source early-stage innovative pipelines from China.

In sharp contrast to the booming BD market, the traditional IPO market remains in a prolonged slump.

Data from foreign media Labiotech shows there were only 11 biotechnology IPOs worldwide in 2025, one of the lowest figures in years. Biotech IPOs plummeted from over 100 in 2021 to just more than 20 in 2022, remaining at a low level thereafter. While IPO activity has picked up slightly in recent months, the listing window has not fully reopened, and public market sentiment remains cautious.

Domestically, after the STAR Market tightened its fifth listing standard in 2023, the listing channel for unprofitable biotech firms was effectively frozen, with policy support only fully restored in mid-2025.

The Hong Kong Stock Exchange’s 18A chapter also underwent severe adjustments. Share price slumps post-listing became commonplace between 2023 and 2024. While new stocks saw a brief rally in H1 2025, sentiment cooled sharply in H2, especially towards the end of the year, with liquidity under significant pressure.

Against this backdrop, the advantages of the SPAC pathway have become prominent. Offering relatively definitive valuations and a controllable timeline for enterprises, it has emerged as an alternative listing option for unprofitable biotechnology companies seeking access to capital markets.

Nevertheless, the SPAC listing route is not suitable for all Chinese biotechs.

Historically, Chinese companies listed on U.S. stock markets via SPACs or reverse mergers have faced an awkward predicament post-listing: share prices surge briefly upon merger completion, followed by a rapid collapse in liquidity, with daily trading volume shrinking to merely tens of thousands of U.S. dollars.

Though nominally listed on Nasdaq, these enterprises fail to secure meaningful financing support from U.S. capital markets. This status of "listed but unfunded" is unsustainable for cash-burning biotechnology companies, amounting to drinking poison to quench thirst.

Assets eligible for SPAC mergers must possess global competitiveness that requires no cultural or regional interpretation. This means the scientific merit and clinical data of their pipelines can be directly understood by U.S. investors without additional explanation.

Such assets generally fall into two categories: first-in-class or best-in-class drugs targeting major global diseases such as oncology, autoimmune disorders and metabolic diseases; second, world-leading proprietary technology platforms—for instance, China has built unique expertise in nucleic acid delivery systems and bispecific antibody structural design.

A key benefit of these assets is that roadshows do not require extensive explanation of the nuances of the Chinese market, allowing investors to benchmark them directly against global peers for valuation.

Timing is also critical. SPACs typically have a 24-month window from IPO to merger completion, meaning target companies must have clear upcoming milestones within two years—such as the release of pivotal clinical data, FDA regulatory interactions, or new drug application (NDA) submissions. Companies with core pipelines still in preclinical stages or three to five years away from key milestones cannot align with the SPAC timeline.

Unlike traditional IPOs, SPAC mergers are essentially negotiations. Buyers and sellers negotiate on valuation, lock-up periods, management retention and future financing arrangements. Founders capable of navigating these discussions must possess both scientific expertise and a deep understanding of capital market rules. Those with a track record of cross-border M&A or BD deals hold a distinct advantage.

Furthermore, SPAC mergers require establishing a new overseas listing entity to control domestic operating assets via variable interest entity (VIE) structures or other frameworks. Target companies’ existing shareholder structures, equity incentive plans and board compositions must adapt to this restructuring. Enterprises already established with red-chip structures, or those that have previously secured funding from U.S. dollar funds, face a far smoother transition.

It is vital to note that a stock ticker symbol alone does not guarantee financing capacity. This challenge persists for Chinese concept stocks in the U.S. market. Chinese biotech firms have largely exited the U.S. traditional IPO market since 2021, and the small number listed via SPAC mergers universally struggle with insufficient liquidity.

Despite these challenges, the underlying logic remains intact. As capital and technology continue to integrate deeply in China, more compelling stories of Chinese pharmaceutical innovation are only just beginning.