The short-term deal to reopen the federal government could provide a crucial window for biotech firms which have filed to go public — a process that has been stymied by the shutdown at the Securities and Exchange Commission — and for more established drugmakers which faced potential headwinds getting drug approvals at the Food and Drug Administration.
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For about a dozen biotech companies that filed for IPOs in December, the shutdown at the SEC has resulted in a delay getting a sign off on their listings from regulators, which threatened to push back their debuts for several months.
On Wednesday, immunotherapy drug company Gossamer Bio, which had filed in December, amended its S-1 IPO registration, saying it would sell 14.4 million shares for $16 each, which would raise $230 million. Under SEC regulations, its IPO registration would become automatically effective after 20 days, without the need for further regulatory approval.
Analysts say there are risks to skipping the traditional IPO pricing process and listing shares without a sign off from the SEC. By filing, Gossamer was essentially betting that the government would reopen before the 20 days expired; a bet could now pay off.
“Now that the SEC is open for the next several weeks, (the company) will be in discussions with the SEC about moving forward sooner than the 20 day route,” said Kathleen Smith, co-founder and principal of IPO research firm Renaissance Capital, adding that it’s likely Gossamer will price its deal through the traditional route within the next week.
Gossamer Bio, which has six treatments in the early to mid-clinical research phase, reported a net loss of $108 million for the first 9 months of last year, according to its regulatory filings. If the firm waits to go public after Feb. 14, it would have to restate its financials to include full-year results for 2018 which could result in a months-long delay of its IPO.
With only a temporary reprieve from the shutdown, the clock is ticking for other firms looking to go public.
“There’s going to be a rush to get out of the door,” for companies in the IPO pipeline, Smith said. “This may turn the market into a buyer’s market more than a seller’s market,” she said adding, “That may very well be good for investors.”
On the clinical side, it’s not clear how quickly the FDA will be able to clear up delays in reviews for new clinical trials and approvals for new drug applications.
“For early-stage companies hoping to get their products into clinical testing… applications are (typically) reviewed within a 30-day window,” explained Karen Young, partner and pharmaceutical and life sciences leader at PwC. “The shutdown could contribute to logistical issues for companies who still need to pay staff, manufacture drug products for testing, and recruit patients for their trials.”
FDA Commissioner Scott Gottlieb said last week that he’d taken measures to stretch drug application fees paid by drug and device makers to the agency in order to fund operations through February, but at least one drugmaker complained that its drug application was being delayed nonetheless.
Aimmune Therapeutics disclosed in a regulatory filing last week that the FDA notified the company it would not start a review of its experimental peanut allergy treatment until the “shutdown and lapse in appropriations” were resolved.
Analysts at RBC say it’s unclear how long the one-month shutdown will impact the timeline for biotech firms like Celgene and Alder which planned to submit new drug filings in the first quarter of this year, and companies including Sage Therapeutics and Incyte which were scheduled to undergo drug approvals in the first half of the year.
“If one assumes this was just a temporary shutdown… one wouldn’t expect residual backlog and delays… beyond one month,” said RBC analyst Brian Abrahams, noting the agency is coming off a year when it approved a record number of new drugs.
“The FDA is an increasingly efficient and well-run organization these days, with strong and communicative leadership,” he said.
The question is whether the White House and Congress will keep the government’s doors open, when the temporary funding deal expires in three weeks.