Another Shutdown Casualty: Biotech IPOs

The partial government shutdown may be cooling the red-hot market for biotech IPOs — aka initial public offerings on the stock market.

The Securities and Exchange Commission said this week that its normal functions are suspended because the agency isn't funded. Companies can't go public without SEC approval.

This freeze in the IPO pipeline applies to all business sectors, but the timing is particularly bad for some Massachusetts biotechs.

January could have been a great month for a biotech firm to launch what's known as a road show for IPO. A road show is just what it sounds like: Executives go on the road and show prospective investors why they should buy a lot of stock.

But the show can't go on.

"I'm not aware of anybody who has started a road show during the shutdown," said Patrick O'Brien, a partner at Ropes & Gray in Boston. In Massachusetts's booming biotech industry, he's part of the small circle of lawyers who routinely counsel companies through the IPO process.

O'Brien said he knows of more than one firm whose IPO is stalled by the shutdown, but he declined to identify the companies.

He said one problem is that investors don't want to waste time meeting with companies whose IPO dates are up in the air.

"At the end of the road show, the SEC has to actually do something — that is declare the registration statement effective," O'Brien said. "And, since they're not open for business to do that, you can't actually complete your IPO."

Before the shutdown, January looked promising. Cambridge-based Moderna Therapeutics closed 2018 by smashing the IPO record for a biotech company by raising $604 million.

Then, the industry gathered for the annual J.P. Morgan Healthcare Conference, a major opportunity to impress investors.

"Where biotech ends up in the year almost always sets the mood for what happens a week and a half later at J.P. Morgan in San Francisco," said venture capitalist Jorge Conde of Andreessen Horowitz.

The conference was just last week. This would normally be an ideal time for biotech executives to follow up with those fund managers they schmoozed over cocktails.

The shutdown complicates such dealmaking, though it's unclear how many biotech IPOs are affected.

Framingham-based Alzheon withdrew its application on the same day that the SEC said operations are on hold. But the lawyer advising Alzheon, Peter Handrinos, said he can't comment on whether the shutdown caused the company's decision.

He did offer general comments: "The situation with the shutdown and its impact on the SEC probably has impacted some companies. Companies that have done the prep absolutely are eager to get out if they can. And now is the time that they would want to do it."

Handrinos said volatility in the stock market is another factor for companies considering an IPO. And when the shutdown does end, one question will be: How long is the backlog at the SEC?