Early stage drug development startup Valo Health announced this week that it will be making its public debut through a merger with blank-check firm Khosla Ventures Acquisition in a deal valuing the combined company at $2.8 billion.
Valo Health uses machine learning and artificial intelligence to enhance drug discovery and development. Its flagship Opal Computational platform uses clinical data to identify molecules and predict their chances of success in particular therapies, with the goal of making an end-to-end drug discovery process that can be replicated in several major disease areas.
To date, the company says it has two in-licensed clinical stage assets and 15 preclinical programs across various cardiovascular, oncology and neurodegenerative diseases.
Valo Health was founded in 2019 by Flagship Pioneering, a Cambridge-based incubator also responsible for major companies like Indigo Ag and Moderna, and completed a massive $300 million Series B just last March. It was also named among Built In’s Companies to Watch in 2021 and, in light of this latest news, it seems we were on to something.
“We see this partnership with [Khosla Venture Acquisition] as a unique and fantastic opportunity to bring the future forward to transform and accelerate the discovery and development of life-changing therapeutics,” Valo Health’s founder and CEO David Berry said in a statement. “Khosla’s reputation is second to none for building and investing in transformational technology-enabled businesses, and we believe this partnership helps realize our vision of accelerating the creation of life changing drugs.”
Indeed, Khosla has invested in several influential tech companies in the health space lately, including Oscar Health and Forward. The company says Valo Health’s “fully integrated computational approach” could help improve drug discovery in a “dramatic way,” potentially reducing the “significant failure rate” in traditional drug development.
“By bringing powerful computational approaches and human data across the lifecycle of drug discovery and development — aiming to reduce time, cost and risk to programs — Valo offers to potentially change the value curve for a trillion-dollar market segment,” Samir Kaul, a founding partner and managing director at Khosla, said in a statement. “Valo fits squarely into the companies we are excited to back and bring our experience to.”
Khosla Ventures Acquisition is a special purpose acquisition company (SPAC), meaning it is a shell corporation listed on a stock exchange that acquires private companies like Valo Health to take them public. Several other healthtech startups including Ginkgo Bioworks, Hims & Hers and 23andMe have done SPAC deals in the last year too, forgoing the hassles that often come with a traditional IPO.
Kaul will be joining Valo Health’s board of directors upon completion of the deal, which is expected to happen next quarter. The combined company is expected to have a pro forma cash balance of about $750 million before expenses, which includes existing Valo Health cash, net cash in Khosla’s trust, and a $168.5 million private investment in private equity (PIPE) from various investors including Khosla, previous backer Koch Disruptive Technologies and Flagship Pioneering.
Valo Health says the net proceeds will be used to accelerate the development of its platform and further scale its therapeutic and data strategy programs. The company is also hiring, with about two dozen open tech positions available now, many of which are at its Boston headquarters.
