How might SVB’s collapse affect the biotech industry
Key Takeaways
Silicon Valley Bank (SVB) collapsed earlier this month, leaving the biotech industry scrambling.
SVB helped get many biotech industries off the ground and left the industry looking for other financial solutions.
In early March, startup-focused lender Silicon Valley Bank (SVB), part of publicly traded bank holding company SVB Financial Group, collapsed, leaving business leaders scrambling and “billions of dollars belonging to companies and investors stranded,” reports Reuters. As the 16th biggest bank in the United States, it became the largest to fail since 2008’s global financial crisis.[]
Why did SVB fail? It depends on who you ask. It may have come down to its asset strategy, according to a Q&A penned for Forbes by Steve Brozak, president of WBB Securities, LLC—an investment bank and research firm that specializes in the biotechnology, specialty pharmaceutical, and medical device sectors. Brozak posits that “by purchasing longer US treasuries at a time when the Fed was raising interest rates, it triggered sharp short-term devaluation of its investment portfolio. When forced to sell the same treasuries, SVB sustained immediate and problematic losses.”
That said, others don’t blame the bank itself. Some blame it on worry, specifically “the venture capitalists who advised large numbers of startups to pull their deposits from the bank all at once,” according to CNBC.
Essentially, when SVB announced a bonds sale on March 8, its stock plummeted. This set off a domino effect; first, it alarmed venture capitalists who urged their portfolio companies to urgently withdraw funds. Then, startups pulled out more money than SVB had.
As a result of the run, the California Department of Financial Protection and Innovation closed SVB on March 12, appointing the Federal Deposit Insurance Corporation (FDIC) as a receiver. The FDIC then created the Deposit Insurance National Bank of Santa Clara (DINB), which holds all of the SVB’s insured deposits.[]
After its collapse, SVB was widely supported by many venture capital leaders, who stated, “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.”[]
The bank is up for grabs now, according to an FDIC press release: “The FDIC is seeking bids on Silicon Valley Private Bank by 8:00 P.M. EDT on Wednesday, March 22, 2023, and on Silicon Valley Bridge Bank, N.A. by 8:00 P.M. EDT on Friday, March 24, 2023.”
How will SVB’s collapse impact biotech?
SVB’s collapse could lead to serious consequences, especially in biotech. SVB was a key player when it came to the growth of investments in this area, providing a “one-stop banking-finance solution” to these clients, wrote Brozak in Forbes. In fact, almost half of all US venture-backed technology and life science companies worked with SVB, according to an op-ed by FierceBiotech.[]
For many biotech companies, chaos commenced after the bank run. Consider The Flex Company, a top-selling sustainable period care brand, which kept all of its liquid capital in SVB. The company’s CEO and co-founder, Lauren Schulte Wang, cut her own personal savings in half in order to pay her employees, according to CNBC.
For other clients, being left without an alternative lender could be disastrous. As Brozak wrote in Forbes, other banks will likely raise their funding thresholds, making investments a challenge. Berenberg Capital Markets analysts told FierceBiotech that “There's nervousness among investors in small biotech companies about possible exposure to SVB.” That said, there is currently a running list of biotech companies whose exposures were limited.
There’s no way to know the entirety of the damage just yet. While public companies will need to disclose deposits, liabilities, and loans with SVB to their investors, private companies can choose not to.
In the end, this affects people whose lives depend on biotech innovation. One anonymous source told Reuters that this could lead to “pairing back pipelines of medicines in development.”
Paul J. Hastings wrote in the aforementioned FierceBiotech op-ed, “With advances in cell and gene therapy, we’re now on the precipice of delivering a new generation of curative breakthroughs. For decades, SVB played an outsized role in helping biotech startups get off the blocks, and emerging companies scale up to human trials. We will need new financiers to step forward.”[]
The impact to biotech directly impacts the people, Brozak also wrote in Forbes. “More broadly, the collateral damage will affect every one of us. What will be the loss in innovation? With no one to support the thinkers and their ideas, we run a risk of entering into an era of life sciences stagnation.