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Why Ark is backing the CM Life Sciences SPAC

In the latest round of special purpose acquisition company (SPAC) excitement, the CM Life Sciences SPAC [CMLF] has announced it will merge with AI firm Sema4. The news sent its share price soaring 42.4% higher on 10 February.

Ark Investment Management has offered a vote of confidence, with its Ark Genomic Revolution Multi-Sector ETF [ARKG] picking up 1,546,926 shares in CM Life Sciences.

Sema4 is a clinical data company that uses AI to help bring patients’ data together. According to a press release accompanying the merger announcement, Sema4 has the “largest, most comprehensive, and fastest-growing integrated genomic & clinical data platform.”

“This transaction is a significant milestone for Sema4. The additional resources will allow us to greatly accelerate our business plans organically and inorganically, developing and bringing in more cutting-edge precision model solutions across multiple disease areas,” said Eric Schadt, Sema4’s founder and CEO.

“This transaction is a significant milestone for Sema4. The additional resources will allow us to greatly accelerate our business plans organically and inorganically, developing and bringing in more cutting-edge precision model solutions across multiple disease areas” - Eric Schadt, Sema4’s founder and CEO

 

The merger is valued at a $2bn enterprise value, which includes $443m from CM Life Sciences’ IPO in September 2020 and another $350m in private investment and public equity.

Once the transaction is complete, the merged CM Life Sciences and Sema4 will be renamed and its stock listed on NASDAQ, although its listing date is yet to be announced. The deal is expected to close in the second quarter of 2021.

 

Why should investors care?

SPACs are so-called “blank cheque” shell companies which raise funds through an IPO to take a private company public.

The fact that CM Life Sciences is on Ark CIO and founder Catherine Wood’s list makes it a must-watch for many investors, with its share price jumping over 40% following disclosure of the Ark investment. 

Wood’s investment house has burst into the top 10 issuers of exchange traded funds (ETFs) in the world thanks to the success of its ARK Innovation ETF, with the founder’s bullishness on Tesla [TSLA] leading to huge jumps last year. Elon Musk’s EV producer is the biggest single holding across ARK’s actively managed ETFs.

40%

CM Life Sciences' share price rise following disclosure of the Ark investment

 

Spotlight on the genomics investment theme

So, why are the genomics and healthcare sectors amongst the most talked about investment trends in 2021? Its success seems particularly surprising given that, until recently, the sector was considered less than thrilling.

Although the genomics investment theme is down 3.64% for the past month on our Global Thematic ETF Screener, it’s up more than 77.16% over the past 12 months (to 17 February’s close). The related medical healthcare theme is up 2.28% in the last month, and 329.84% over the past year (as of 17 February’s close). Both investment themes are outpacing the S&P’s performance over the same time periods.

77.16%

12 month growth of the genomics investment theme

 

ARKG, which holds the CM Life Sciences investment, has had a strong 12 months. Its top holdings Teladoc Health [TDOC] and Pacific Biosciences of California [PACB] have both seen triple digit gains as genomics and healthcare stocks have gained traction in the investment community. In the three months to 31 December 2020, ARKG gained 47.61%.

For investors, then, ARKG could provide exposure to both the CM Life Science SPAC and the wider healthcare and technology sector.

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