- Nasdaq gave its first public guidance Thursday to companies seeking to go public amid the partial government shutdown, the same week Gossamer Bio became the industry's first initial public offering to use an unusual legal maneuver to bypass the Securities and Exchange Commission.
- Typically, companies work back and forth with the SEC to resolve questions about their IPOs. But those reviews stopped when the shutdown began, leaving some companies to consider taking the seldom-used step of modifying their registration statements to side-step the need for clearance from the federal agency.
- Gossamer Bio did just that in a Wednesday filing, setting up an offering in mid-February that could raise $264.5 million. And on Thursday morning, Nasdaq formalized its approach to the tactic, saying it generally would list companies that have either satisfied the SEC review or who say they have fully addressed all agency comments. Gossamer declined to comment Thursday if it received a clear signal that Nasdaq would list the company.
More biotechs could follow Gossamer's lead, particularly if resolution to the shutdown remains a distant prospect. But the legal workaround is far from risk-free.
The SEC workaround requires a 20-day waiting period in which the IPO price is fixed, potentially exposing the company to the risk of fluctuations in the broader market. In Gossamer's case, the registration statement will automatically become effective on Feb. 12, and the company can be listed on an exchange anytime after that.
In its amended registration statement, Gossamer disclosed that relying on the approach could "result in a number of adverse consequences, including the potential for a need for us to file a post-effective amendment and distribute an updated prospectus to investors, or a stop order issued preventing use of the registration statement, and a corresponding substantial stock price decline, litigation, reputational harm or other negative results."
The clinical-stage biotech declined to elaborate on why it chose this route. Legal experts have told BioPharma Dive that biotechs dependent on additional cash would be most likely to consider the option. Gossamer had $256 million in cash and equivalents as of Sept. 30, 2018, which it estimated as sufficient to run the company for at least 12 months.
The IPO proceeds would help fund anticipated increases to clinical trial expenses for three therapeutic candidates, the company stated. The company also scaled aggressively last year, going from 11 employees in January 2018 to 104 full-time workers by year's end.
Other biotechs mulling a similar path face a deadline of sorts on deciding to use the workaround, as fourth quarter financials will soon become available. Registration statements would generally become outdated by mid-February and require fresher, audited financials, which would likely further delay IPOs.
While the question-and-answer document from the Nasdaq provides some clarity on what companies it would accept for listing, it discussed terms generally and will act on a case-by-case basis.
If a company has already cleared all SEC comments before the shutdown, the Nasdaq will list the proposed offering. If a company has outstanding comments but says it has fully resolved the issues, the exchange will consider a listing.
For companies in the earlier IPO stages, who have yet to receive SEC comments or first filed during the shutdown, the legal workaround appears much less viable. Exchange officials did state, however, they are open to discussions over "controls, standards and processes that could adequately protect investors while allowing capital raising activity to continue."
In Gossamer's case, it appears the company already worked through several rounds of comments with the SEC, as agency filings show multiple drafts of its registration statement dating back to October 2018.
If the shutdown ends and the SEC reverts back to normal before then, the biotech would re-evaluate the use of this legal workaround, the company stated in a Jan. 23 release. Gossamer would be the industry's first IPO of 2019.