Lingering unease from the recent financing downturn is leading more biotechnology startups to go public by “reverse merging” with a public company.

In a reverse merger, a private company combines with a public one and the startup’s investors become the majority shareholders of the new, combined business. Usually, a public company agrees to it because it has suffered a severe setback, such as a failed clinical trial, and has little hope of recovery on its own.

These days, biotech reverse mergers usually involve a concurrent financing to support the company.

Biotechs struck 11 reverse-merger deals in the first half, compared with five in all of 2025, according to investment bank William Blair.

Not long ago, reverse mergers were stigmatized as two weak players leaning on each other. Startups resorted to them when the initial public offering market was frozen. Now, reverse mergers are rising even as IPOs rev up. Fourteen biotechs staged IPOs in the first half, up from eight in all of 2025, according to William Blair.

Entrepreneurs and investors are changing their view of reverse mergers as market dynamics burnish their appeal.

Several biotechs that went public during the pandemic have since flopped and are ready to consider them. Startups, for their part, often find they can raise as much through a reverse merger as they could through an IPO, and from the same marquee investors.

And while the biotech financing market is rallying, the recent downturn remains fresh in mind and startups are exploring as many options as they can.

“Companies these days are pursuing all opportunities to fund their programs, and reverse mergers are one of the options in their tool kit,” said Jennifer Fang, a partner with law firm Wilson Sonsini Goodrich & Rosati.

The high caliber of some startups agreeing to reverse mergers has raised these deals’ profile. In March, Candid Therapeutics, a venture-backed developer of T-cell-engager treatments for autoimmune and inflammatory diseases, agreed to combine with publicly traded biotech Rallybio, a deal that included a more than $505 million concurrent financing.

A hot target, Candid in May agreed to instead be acquired by drugmaker UCB for up to $2.2 billion. The acquisition closed in June.

As Candid walked away, another startup pounced. Avenzo Therapeutics and Rallybio disclosed a reverse-merger agreement and concurrent $215 million financing on June 1.

Competition for biotech reverse mergers is intensifying because the supply of companies amenable to them is diminishing as more deals get done, industry observers said.

As biotech emerges from the uncertainty of the postpandemic slump, startups seek clarity about the amount they can raise and at what valuation. That is part of reverse mergers’ appeal.

In an IPO, the price and number of shares sold can shift. Biotechs conducting reverse mergers, by contrast, negotiate the concurrent financing and valuation up front.

There are potential drawbacks. Companies meet dozens of investors through the roadshow before an IPO, generally more than they would through a reverse merger and concurrent financing, which is typically raised from a smaller group of investors, observers said.

The IPO roadshow generates a large pool of potential backers who are educated about the company. Even if they don’t join the IPO, they could choose to invest later, said David Nierengarten, managing director and co-head of healthcare equity research for financial-services firm Wedbush Securities.

Some successful executives say their relationships will help them rapidly draw new investors and equity research analysts to their company once they complete their reverse-merger deal.

Startup Avere Therapeutics earlier this month agreed to a reverse merger with publicly traded NextCure and a concurrent $320 million investment. Previously, members of Avere’s executive team worked for Akero Therapeutics, which drugmaker Novo Nordisk acquired in December for up to $5.2 billion.

Because of its experience with Akero, the Avere team has extensive connections on Wall Street, said Chief Financial Officer and Head of Corporate Development William White, who held the same roles with Akero.

“We feel comfortable we’ll have our story get out there in an appropriate way,” he added.

Another option for companies seeking a Nasdaq listing is to combine with a special-purpose acquisition company, or SPAC, a business formed to take a private company public.

Cancer-testing concern Freenome in December said it would combine with Perceptive Capital Solutions, a SPAC deal that closed this week. Freenome secured $310 million through the transaction—$70 million from the SPAC, and $240 million through a concurrent financing.

The agreement protected Freenome from market fluctuations and gave management confidence about the company’s ability to list and the timing of it, said Chief Executive Aaron Elliott.

“Ultimately, the decision was really driven by certainty,” he said.

Freenome didn’t want employees to miss the fanfare that would attend an IPO. The company had a celebration this week, Elliott said, and is scheduled to ring the Nasdaq opening bell on Aug. 4.

‍