Gossamer Bio Inc said on Wednesday it has tweaked its initial public offering (IPO) so it can proceed despite a U.S. government shutdown that has frozen stock market debuts, an extraordinary move that the biotechnology startup acknowledged carried risks.
Gossamer wants to raise $230 million in its IPO so it can fund development of its asthma, hypertension and bowel disease drugs. It first filed publicly for its IPO on Dec. 21, a day before the government shut down.
Most companies have viewed pressing on with an IPO as too risky without the approval of the U.S. Securities and Exchange Commission (SEC), which is operating with skeleton staff and is not greenlighting IPOs.
In an electronic filing with the SEC, Gossamer acknowledged that its decision could result “in a number of adverse consequences,” including litigation and an order to prevent the use of its IPO registration statement.
Gossamer Bio’s move could also embolden other companies to follow suit, however. At least one other hopeful, New Fortress Energy, which owns LNG liquefaction and regasification facilities, is planning to announce similar tweaks as early as Thursday so it can launch its IPO, people familiar with the matter said.
A spokeswoman for New Fortress Energy declined to comment.
“Desperate times call for desperate measures,” said Richard Truesdell, a partner and co-head of capital markets at law firm Davis Polk LLP.
President Donald Trump has demanded that U.S. Congress fund a wall on the border with Mexico to end the shutdown, which has left 800,000 federal workers furloughed or working without pay. An agreement with Democrats who control the House of Representatives to end the standoff remains elusive.
SEC REVIEW
Companies typically rely on the SEC to approve their IPO following a review of their prospectus to investors before going ahead with a public listing.
Under the rules, however, companies can make their IPO registration “effective” on their own if they agree to lock in their IPO price 20 days before their market debut, as opposed to the night before as is customary.
With no end in sight to the shutdown, Gossamer said on Wednesday it would do just that, which could alienate investors wary of long lead times between pricing and trading.
“The risk is that they had to put in the price and so they have to hold together the book for 20 days,” said Thomas Holden, a partner at law firm Ropes & Gray LLP.
The risk for both Gossamer and Fortress Energy is eased because the two companies received significant feedback from the SEC before the shutdown occurred, capital markets experts said. This would not be the case with new filings or companies that are further back in the line in their SEC review.
Still, “it presents legal and market risks for investors. Hopefully, the IPO price takes those risks into account,” said Kathleen Smith, founding principal at Renaissance Capital, a research firm and manager of IPO-focused exchange-traded funds.
Some 21 companies have submitted filings for their IPOs since Dec. 1, indicating they have had some feedback and are considered the most active filings, according to Renaissance Capital.
At least half a dozen so-called special purpose acquisition companies, which unlike Gossamer, Fortress Energy and most other companies have no existing business, are already proceeding with their IPO without the approval of the SEC.
SPACs raise money in an IPO to carry out acquisitions. At the time of their IPO, they are essentially shell vehicles with no pre-existing assets. Their initial valuation is based solely on the amount of cash they raise, which allows their IPO price to be set in advance without alienating investors.
What is more, a SPAC’s prospectus can often follow a standard template, minimizing the risk of running afoul of the SEC without its feedback.
Gossamer plans to sell up to 14.4 million shares at $16 per share and trade on the Nasdaq stock exchange. It has the right to amend the filing and reinsert the amendment to delay the IPO, should the shutdown end in the next few days.
Source: Reuters.com