The ongoing government shutdown is reverberating through corporate America, upending plans by private companies to go public and delaying multi-billion mergers.
And after 19 days of partially shuttered operations, there’s no end in sight. President Trump urged Senate Republicans on Wednesday to “stick together” in resisting calls to pass a spending bill to reopen most of the shuttered federal agencies as the two sides debate the more than $5 billion the White House is seeking to build a wall on the U.S.-Mexico border. He later walked out of a meeting with congressional Democrats.
Among the shutdown’s effects are that key reviews on corporate matters by the Securities and Exchange Commission have largely come to a standstill and Food and Drug Administration assessments of new medications are likely to be delayed.
Several initial public offerings for January have been put on hold, and plans by companies to follow suit later in the year could also be impacted. As a result, smaller biotech firms, tech companies, and others are starting to weigh whether capital-raising initiatives will be necessary to ensure they have enough money, experts say. Some are even considering drastic measures, like side-stepping the SEC review process that occurs directly before the public offering.
At the same time, drugmakers with new treatment applications under review by the Food and Drug Administration, another department affected by the shutdown, are bracing for potential approval delays or postponements of key premarket meetings. Such deferrals could undermine the billions in user fees the pharmaceutical industry has invested in strict review schedules that can determine everything from earnings projections to when to go public or when to sell to another company.
FDA Commissioner Scott Gottlieb on Monday said the agency would reallocate funding from certain premarket drug review work to post-market drug safety surveillance.
“The functions that can most directly impact consumer safety will continue, to the best of our abilities, subject to the legal and financial limitations of the current circumstances,” he wrote on Twitter.
For initial public offerings, often referred to as IPOs, the process typically starts as much as 18 months ahead of the actual date that stocks will be offered to all investors. Companies weigh everything from anticipated market conditions to, in the case of the pharmaceutical industry, when certain clinical data for treatments will be made public. For many businesses, funding is also a top consideration, and IPOs are generally planned around time periods where an influx of new money will be necessary.
Among the companies that have halted offerings for January are Beyond Meat Inc. and biotechnology firms Gossamer Bio and Alector, according to the Wall Street Journal. A Gossamer spokesperson declined to comment, while spokespersons for Beyond Meat and Alector didn’t respond to requests for comment.
Shortly before the offering, companies submit draft documents to the SEC for review to ensure their plans conform to federal laws, a process that typically takes roughly two months. Those reviews are on hold during the shutdown, according to the agency’s public plans, and some banks handling IPOs are weighing whether to proceed without one, since it’s not a requirement.
Eliminating the step, however, “is almost never done as part of a traditional IPO process and historically has been viewed as an almost confrontational act by the SEC,” Michael Bison, a partner at law firm Goodwin, told the Washington Examiner. “The fact that folks are even considering this tells you a lot about how the market is handicapping the likelihood of a speedy resolution to the shutdown.”
Multi-billion dollar acquisitions are facing delays of their own. The Department of Justice, for example, was required to respond by Jan. 4 to concerns from a federal judge over the agency’s approval of a $69 billion merger between CVS Health and Aetna. In a federal filing on Tuesday, the Justice Department said the lapse in federal funding delayed the response.
