BioBuzz by Workforce Genetics
SVB Collapse Appears to Only Have Minor Ripples for BioHealth Capital Region and Greater Philly’s Biotech Scene
While the impact for this event might not be as bad as anticipated, it sends a warning to companies to brace selves for an unpredictable future
By Mark Terry, with contributions from Alex Keown and Sarah Ellinwood
March 14, 2023
The collapse of Silicon Valley Bank (SVB) on Friday, March 10, sent shockwaves through the tech and biotech world. But it does not appear to have had a major effect on the BioHealth Capital Region and the Philadelphia region’s life sciences industry, at least not so far.
On about March 8, SVB, a major supporter of tech, biotech and venture capital funds, indicated it was facing a cashflow problem. Initially, it attempted to raise money by selling shares. Then it attempted to sell itself. Investors were alarmed by these efforts and began pulling their funds from the bank, causing a run on the bank, leading to shares plunging on Thursday, March 9. On Friday, March 10, regulators shut down the bank.
SVB was founded in Santa Clara, California in 1983. It was launched with the intention of supporting and investing in the tech sector and by 2021 claimed to bank for almost half of all U.S. venture-backed startups, dubbing itself “the financial partner of the innovation economy.”
When it failed, it had more than $200 billion in assets. Although that seems very large, compared to the biggest banks, such as JPMorgan Chase’s $3.31 trillion, it was relatively small. Still, the failure makes it the second-largest bank failure in U.S. history, and has major implications for tech and biotech, and potentially for the U.S. banking industry in general.
The BioHealth Capital Region holds the line
While numerous bigger pharma companies, such as Kite Pharma, AstraZeneca, and Kite Pharma call the BioHealth Capital Region home, there are multitudes of other startups that make up the life science ecosystem.
While the weekend was understandably filled with unknowns, anxiety seemed to somewhat wane as the week kicked off.
Rachel King, BIO CEO and 2022 BioBuzz Award finalist, noted in a written statement, “The ecosystem that allows America to develop groundbreaking new medicines is extremely important to our nation and to patients who depend on biotechnology companies. The recent actions by the FDIC, the Federal Reserve, and Treasury to allow SVB depositors to have access to all of their money is a very positive development to mitigate the potential harm to companies that are innovating across healthcare, agriculture, and the bioeconomy. We will continue to monitor the situation and will work closely with regulators to ensure that companies can meet payroll and continue to fund cutting-edge science and the development of treatments and therapies that patients are relying on.”
BioBuzz reached out to Bret Schreiber, VP of Life Sciences and Technology at Fulton Bank, to get his expert insights on the situation.
“SVB will be a loss in the short term for the DMV, as statistically they supported around half of the early stage/startups across the country in one way or another. Long term though, I think you are going to see other banks/entities step up and commit the resources and expertise to support companies in much the same way as SVB,” Schreiber noted. “For example, here at Fulton Bank, our Life Sciences and Technology division was already doing this, and what we’ve done since the collapse of SVB is add resources to our existing capabilities to be able to handle the influx of companies that may need immediate and long term support. We remain committed to the growth of the biotech startup community in the DMV and will continue to do so. We believe this community is too important not to support, and like us, we do believe that other financial solutions and advisors will rise to take the place of SVB. But, there will be short term disruptions and we’ll have to come together in a strategic way to bridge the immediate needs of these companies.”
Rich Bendis, Founder, President and CEO of BioHealth Innovation, also provided us with his insights. “This event could have been devastating for entrepreneurial firms who had deposits in SVB to use for payroll, working capital and short and long term investments. Also, many VCs used SVB as their primary bank for similar needs, and they did not have access to their funds either. As smaller firms raise new capital, SVB has been a safe haven for these funds – they now they need to look for new alternatives but may need to diversify their cash management strategy since access to capital and cash is so critical to entrepreneurial and VC stage companies.”
“I also think the $250,000 guarantee by the FDIC is too low and needs to be updated with the current economy and market conditions,” Bendis added.
CVilleBioHub will also be holding an interactive webinar this Thursday to help the community better understand the situation and discuss potential implications.
Philadelphia also seems to have dodged the bullet so far
With a large and growing biotech startup industry, the Philadelphia region would seem to have been in the way of any major downstream effects of the collapse as well. BioBuzz reached out to several companies in the area with known ties to SVB, and so far, the effects appear minimal.
Bill Berry, speaking on behalf of Orchestra BioMed (New Hope, Pa.), told BioBuzz, “The Company considers its exposure to Silicon Valley Bank as de minimis, given that less than one percent of its total cash, cash equivalents, and marketable securities are held at SVB.”
Similarly, Robert A. Doody Jr., Vice President, Investor Relations for Aclaris Therapeutics (Wayne, Pa.), told BioBuzz, “The situation with SVB has no material effect on us at all.”
BioBuzz also reached out to Immunome (Exton, Pa.) and PhaseBio Pharmaceuticals (Malvern, Pa.), but neither company has responded as of this writing.
More will be known as publicly traded biotechs disclose their exposures in deposits, liabilities and loans with SVG per the Security and Exchange Commission’s (SEC) 8-K major event reporting requirements. Many biotech companies around the country have already issued press releases reassuring their investors of their status. However, it may take longer for non-public startups to issue any update. Private companies may be significantly harmed by the SVB failure, but their respective boards will determine how and when to inform investors, usually a VC firm, as to the extent of the damage. Then it is up to the VC investors when they inform their limited partners.
The industry reacts
Because SVB has been a major player in the tech and life science venture capital world for forty years, a group of venture capital firms issued a statement of support, saying, “Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders. For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the U.S.”
The VC signatories continued, “The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”
Government and regulators respond
The U.S. federal government responded to the collapse with several emergency measures to prevent a broader spread of banking failures. The regulators, according to Reuters, said SVB’s customers will have access to all their deposits starting today, as opposed to just the $250,000 covered by the FDIC. It also created a new facility to allow banks access to emergency funds. The Federal Reserve implemented measures to make it easier for banks to take out emergency loans.
“We think the steps taken by the Fed, Treasury and (the Federal Deposit Insurance Corp) will decisively break the psychological ‘doom loop’ across the regional banking sector,” Karl Schamott, chief market strategist at Corpay in Toronto, told Reuters. “But, fairly or not, the episode will contribute to higher levels of background volatility, with investors watching warily for other cracks to emerge as the Fed’s policy tightening continues.”
U.S. President Joe Biden moved to calm fears, declaring the U.S. banking system “safe” and promising stronger regulation. “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden stated.
He went on to say that the bank managers will be fired and that investors will lose money. “They knowingly took a risk, and when the risk didn’t pay off his adjusters lose their money. That’s how capitalism works.”
Much of the focus of changes in regulations, if Congress decides to act, is on the Dodd-Frank Act. Republican changes during the Trump administration raised the threshold where banks are considered systemically risky and require stricture oversight. The threshold increased from $50 billion to $250 billion. SVB had approximately $209 billion in assets as of the end of 2022.
The collapse has international repercussions as well. According to the UK BioIndustry Association (BIA), about 40% of the UK’s biotech companies were banking with SVB’s British arm.
Today, HSBC, a British multinational universal bank and financial services holding company, acquired the UK arm of SVB for a symbolic one pound. The move saved the UK biotech sector from collapse, at least for now.
“This was absolutely crucial for our sector and companies would be going down this morning if there wasn’t a solution,” Steve Bates, head of BIA, which represents over 500 companies in the UK’s life sciences sector, told Reuters. “On Friday, it was despair. This morning it was elation.”
A lesson learned – don’t put all your eggs into one basket
In a year where the industry continues to face hardships with inflation and layoffs abound, the SVB collapse serves another reminder that companies can’t afford to operate in the same way they did a few years ago. It’s time to shake up your capital strategy.
Rather than depend solely on big banks and VC funding, seek out unique funding opportunities to help provide padding while we’re still treading unstable and sometimes tumultuous waters. TEDCO, of course, is one great resource for businesses in Maryland, and companies should also take more advantage of their proximity to the NIH.
While you won’t be able to raise substantial capital that will last you five years, you’ll have enough to build a temporary, functional bridge over the rapids.
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Mark Terry is a freelance writer, editor, novelist and ghostwriter. He holds a degree in microbiology & public health and spent 18 years in infectious disease research and clinical and research genetics prior to his transition to a writing career. His areas of expertise include biotechnology, pharma, clinical diagnostics, and medical practice management. He has written literally thousands of articles, as well as market research reports, white papers, more than 20 books, and many other written materials. He currently lives in Michigan with his family.