When Mark Emalfarb started his company, Dyadic, it was cashing in on a 1980s trend — supplying pumice to make stonewashed jeans. Forty years later, it now is a small biotech company that was on track to debut on the Nasdaq as a public company this month.
Those plans are now on ice amid the longest government shutdown in history. Without the approval of the Securities and Exchange Commission, which furloughed most of its employees last month, Florida-based Dyadic can’t move forward and raise money from the public.
"We are just caught in the middle,” Emalfarb said. “Our investors and we have been plotting and planning to do this over the last several years as we have rebuilt the company and advanced the company to the point where we were ready to go.”
Now in its fifth week, the shutdown is hobbling key parts of the financial system as companies ditch plans and scramble to deal with how to operate without the help of regulators. Already, it has slowed the market for initial public offerings, or IPOs. Wall Street was expecting tech giants including Uber, Lyft, Airbnb and Pinterest to conduct IPOs this year, pushing the amount raised in public markets into record territory, but that now seems unlikely.
By this time last year, eight companies had already gone public, said Kathleen Smith of Renaissance Capital, a manager of IPO products. “There is a growing backlog of companies waiting for comments from the SEC, but no one at the SEC is there to respond,” she said. “We will have to see how creative companies will be in trying to become public.”
With no clear end in sight for the shutdown, some companies are finding ways around the SEC. Atlanta-based Groundfloor provides loans to people buying and flipping properties and then taps investors online to crowdsource the costs. But the SEC must approve the securities the company uses for the deals, typically in batches of 10 to 15 loans a week.
“We work with the SEC week in and week out,” said Brian Dally, the company’s co-founder and chief executive. “When the government shut down, the whole machinery stopped.”
For now, Dally said the company can operate only in Georgia — which has an exemption to the SEC rules — severely restricting its reach. It has also begun reaching out to private equity companies and investors for help, he said. “Fortunately, Georgia is open for business, unlike Washington, D.C.," he said.
For Emalfarb, the shutdown is delaying a long-held dream for of Dyadic. The company had aimed to join Nasdaq before a big health-care conference in San Francisco on Jan. 7, where Emalfarb hoped to meet institutional investors, such as pension and hedge funds, and raise its profile among other biotech executives. The deal was days away from final approval when the shutdown struck.
“We can’t get a hold of anyone; it’s just voice mail,” said Ping W. Rawson, the company’s chief accounting officer. “At the last minute, we couldn’t get final confirmation from the SEC.”
The company helped pioneer the stonewashed jeans industry, supplying pumice stones to Levi Strauss & Co. and other makers, Emalfarb said. But then the market switched to using enzymes instead of rocks and Dyadic had to change, he said. (The pumice stones turned into sand after being used and were clogging up city sewer lines.)
Dyadic eventually began making its own enzymes and in the process discovered a modified strain of fungus that can be used to develop biopharmaceuticals. Its enzymes are now used in varied products and industries, such as ethanol and drug development.
Dyadic has traveled a bumpy road. The company was delisted from the American Stock Exchange, which was purchased by the New York Stock Exchange, in 2008 after finding problems in its Asian subsidiaries. In 2015, Emalfarb sold the bulk of the business to DuPont for $75 million, and it lost about $5 million during the first nine months of 2018, the most recent data available.
The company’s stock is currently traded over the counter, where there are fewer investors and its price can fluctuate greatly. Joining the Nasdaq could draw the attention of investors and federal regulators, including the Food and Drug Administration, which Dyadic needs to continue to grow, Emalfarb said.
Being limited to over-the-counter trading keeps the company off the radar of most investors, he said.
“We need to flourish and speed up the adoption and use of our technology in order to help make biologic vaccines and drugs more affordable to patients."
Emalfarb said is also concerned that interest could wane as the company awaits SEC approval and investors could put their money elsewhere.
“We have already seen people move on,” he said.