By Mark Terry
Last year was a record year for biotech initial public offerings (IPOs), but 2019 is off to a slow and rocky start because of the government shutdown, which today is in its 31st day.
As a result of the shutdown, some companies with plans to go public are considering a legal loophole to move forward. In the first quarter of 2018, there were 47 IPOs. So far this month, not much is going on because the U.S. Securities and Exchange Commission (SEC) is largely shut down along with the rest of the federal government.
One possible workaround is when a company changes the language of its registration filing to skip over the rest of their SEC review, going directly to market. The company chooses its IPO price and waits 20 days. The listing is then fixed at that price.
This method, according to Michael Benson, a partner at law firm Goodwin, is legal, but not typically used. In an interview with BioPharma Dive, Benson said the procedure exposes the company to “a fair amount of market risk.”
It’s also pointed out that just last week, Framingham, Mass.-based Alzheon had made plans for a second attempted IPO back in August, then withdrew the offer on January 16. It’s not clear whether Alzheon was backing off because of the government shutdown or for other reasons. The company had initially planned an $80 million IPO in April 2018 but withdrew that offer. The August IPO was for $40 million.
It’s possible, though unknown at this time, that Alzheon, which is working in the volatile area of Alzheimer’s disease, is struggling to gain interest in the company because of the sheer number of trial failures in Alzheimer’s.
Although apparently some companies are considering the workaround, the Nasdaq appears skeptical. One reason the companies might want to reconsider is the possibility they will face disputes once the government reopens.
“There certainly could be someone who’s been through several rounds, who is far enough along, that they are very comfortable in saying they’ve cleared all their comments [with the SEC],” Andrew Fabens, a partner at law firm Gibson, Dunn & Crutcher, told BioPharma Dive. “Theoretically, that’s possible.”
Others related to the investment industry are concerned about the backlog being caused by the shutdown. Matthew Feinberg, managing director at investment bank B. Riley FBR, stated, “Once the government reopens, it may create some challenges for competing companies with similar stories, but I don’t expect that to have a major impact on the quality names.”
He is confident there will be a backlog, potentially a large backlog, but less clear is how the SEC will prioritize them once they get back to work.
About 40 percent of the U.S. Food and Drug Administration (FDA) is shut down. Food inspections were slow, and once prescription fee funding from 2018 ran out, drug reviews were stalled. The FDA suspended reviews of existing Investigational New Drug (IND) and Biologics License Application (BLA) applications not covered by user feeds. Even applications already filed won’t be reviewed, which is delaying the approval of new drugs.
The FDA announced a broad range of new guidance proposals in 2018, but those are also being delayed because of the shutdown.
It has also been noted that the private markets are starting to feel an impact. The U.S. Treasury Department launched a pilot program that requires pre-clearance in specific situations for foreign investment into U.S. companies or technologies. They aren’t being reviewed during the government shutdown, which means that U.S. companies are increasingly finding it difficult to take money from investors outside the U.S.
Bison told BioPharma Dive, “I think it will have a lasting effect on the industry both from an operational perspective and also in accessing public markets.”