SVB - Nearly half of all U.S. venture-backed technology and life science companies bank with SVB—the 16th largest bank in the country—with a total of $342 billion in client funds and $74 billion in total loans.
The news that the bank was conducting an underwritten public offering to raise up to $2.25 billion to cover losses from its Treasury and mortgage-backed securities portfolios sparked a bank run. While the bank’s executives tried to calm the markets, saying that there was no concern in covering deposits, shares plummeted anyway, wiping out 60% of the bank’s market value. The bank was shut down Friday morning by government regulators, marking the largest bank failure since the 2008 financial crisis and the second largest of all time behind Washington Mutual which failed on September 25, 2008.
Vida Ventures Co-Founder and Managing Director Arjun Goyal, M.D., said in an interview with Fierce Biotech that the firm has advised companies to examine their exposure to SVB and transfer that to other banks. Goyal did not explicitly mention the companies that were advised, but Vida has invested in biotechs such as Volastra Therapeutics, Alterome Therapeutics, Capstan Therapeutics and Aktis Oncology in the past year.
“It's unfortunate because the industry has gone through a few sort of hits … so this doesn't help in terms of sentiment,” Goyal said. “And a lot of it is not in the control of biotech companies or venture investors.”
A source close to the discussions at a publicly traded biotech said that the company had less than $500,000 in cash at SVB and its efforts to transfer money out of the bank are still pending. They said "vultures" from other banks have reached out to pitch their treasury and offerings.
"There will be a ripple effect, I think, for a lot of these startups," the source said. "Because that's where they're getting a lot of their capital."
Fierce Biotech has also learned from one firm that it was encouraging California-based companies to move deposits from SVB to First Republic Bank. First Republic did not immediately respond to a request for comment.
Many VCs have also offered similar advice to their own biotech clients and there’s been communication between firms to discuss what action to take, according to a source familiar with the conversations.
A number of other prominent VC firms declined to comment on the evolving situation.
The shockwaves continued to ripple across the larger economy Friday morning. After SVB's capital raise failed and it couldn't find a buyer, as reported by CNBC, the California Department of Financial Protection and Innovation closed the bank, with plans to reopen Monday, March 13.
The FDIC set up the Deposit Insurance National Bank of Santa Clara to protect insured depositors, promising that these depositors would have access to their funds by Monday morning.
There's nervousness among investors in small biotech companies about possible exposure to SVB, according to Berenberg Capital Markets analysts. "This is justified, in our view, because cash reserves are the lifeline of these loss-making small to mid-cap biotech companies," said analyst Zhiqiang Shu, Ph.D.
Most companies polled by the Berenberg team said they had minimal exposure, including Amicus Therapeutics, Kymera Therapeutics, CureVac, Repare Therapeutics and Affimed. Those that do have business with SVB said their deposits were mostly for short-term operating expenses. These companies already had, or were in the process of moving their money elsewhere.
"Some CFOs highlighted to us that their companies safeguard their cash and investments in diversified portfolios and with larger banks," the analyst wrote. "What remains to be seen is the exposure for private biotech companies."
But a larger concern looms. Shu wrote: "We will also continue to monitor whether this initial crack would metastasize to other parts of the financial system."
Mizuho Securities was peppered with calls from its covered biotechs Friday morning, according to an afternoon note. "The heavy majority of responses coming in from our covered companies are citing minimal to no exposure," Mizuho's biotech research team said. Despite many companies not having immediate exposure, biotechs worried about "contagion risk," where the challenges at SVB could spread to other banks.
From Mizuho's roundup:
Arcutis Biotherapeutics has a "tiny exposure" from its daily operational account and plans to manage it "even tighter now." Atara Biotherapeutics has a small balance with SVB as of Friday morning and iss assessing future plans for the funds along with what happens at the bank. Cytokinetics no longer has a term loan with SVB and its cash exposure is very minimal. Karuna Therapeutics reported that 99% of assets are in custodial accounts and checking operations are not run through SVB. It does, however, have a legacy account with a small balance representing less than 0.1% of cash, cash equivalents and investable securities. Merck & Co said its exposure was "insignificant," according to Mizuho. Nkarta does have deposits with the bank, but the biotech said the exposure was minimal as the investments it has are mostly in money market funds and fixed income that is outside of SVB. The biotech is monitoring the situation and has no plans to move what is at SVB as of the latest update to the Mizuho note. Unity Biotechnology reported $2.6 million in an operational account at SVB while investments are held elsewhere. Alector Therapeutics, Athira Pharma, Iovance Biotherapeutics, Sarepta Therapeutics and Arcus Biosciences are among those that have reported no or minimal exposure. |
