Valo Health and Khosla Ventures call off $2.8 billion SPAC merger

Valo Health, a Boston biotech using artificial intelligence for drug discovery, announced late Monday that it has agreed to end plans to go public via a merger with a special purpose acquisition company.Valo Health

Valo Health, a Boston biotech using artificial intelligence for drug discovery, announced late Monday that it has agreed to end plans to go public via a merger with a special purpose acquisition company.

Valo and Khosla Ventures Acquisition Co. cited “current market conditions, particularly in the biotechnology area,” as the reason for calling off the deal, announced in June, which would have valued the combined firm at $2.8 billion. The merger was expected to close in the fourth quarter and leave Valo as a publicly traded company with $750 mil­lion in cash.

The companies and their respective boards made the decision to end the merger ahead of a planned meeting on Tuesday when shareholders were expected to vote on the business combination.

Several biotech companies have gone public through SPAC mergers this year, although not all of them have panned out for investors. Cambridge-based Gemini Therapeutics, which went public in February, saw its shares fall nearly 70 percent over the past six months to around $3. In October, the company announced it would cut 20 percent of its staff and end research programs.

Valo chief executive David Berry said Valo’s decision leaves the company in a “position of strength” to keep growing next year and beyond. Valo raised $300 million in its second round of financing earlier this year, bringing its total funding to $450 million.

The decision comes less than a week after Valo issued a press release indicating that it expected to raise an additional $33.5 million from investors as part of the merger. Valo said “multiple institutional investors” committed more money in July, as did Berry and chief financial officer Graeme Bell. Valo launched in 2019 out of Flagship Pioneering, the Cambridge-based investment firm that founded breakout COVID-19 vaccine maker Moderna.

Samir Kaul, a founding partner and managing director at California venture capital firm Khosla Ventures, said Monday that the SPAC still plans to merge with a company that would be “impactful to the world.”

“Valo Health is a strong company and we wish them continued success as they move forward on a very solid plan,” he said in a prepared statement. “We will continue to look for other high-impact targets across a range of industries to deliver maximum shareholder value.”