Spotlight: Silicon Valley Bank Failure Rocks the Life Sciences

What it means to Big4Bio companies as well as ongoing media coverage

On Wednesday, March 8, SVB Financial announced plans to raise $1.75 billion through the sale of shares to cover $1.8 billion in losses from securities sold by Silicon Valley Bank (SVB), located in Santa Clara, CA. Shares plummeted 60 percent the next day, sending shock waves throughout the Big4Bio-regional life sciences industry, triggered by fears that the bank might be unstable and reports of companies and VCs pulling their funds from the bank.

On Friday, March 10, trading was halted as the Federal Deposit Insurance Corporation (FDIC) took over SVB, the second largest bank failure in U.S. history.

SVB is a major player in financing many Big4Bio-area early-stage life sciences companies, both biotech and healthcare companies. Venture-backed life sciences companies account for 12 percent of SVB’s $176 billion of deposits and 36 percent of $168 billion in funds held off balance sheets as of year-end 2022, according to Bloomberg.

Dennis Ford, CEO of Life Science Nation

The trouble had been brewing for more than a year. SVB had seen its shares rise more than 170 percent the boom years between 2018 and 2021, with deposits growing from $49 billion to $189 billion. It had deployed a share of that money by investing long-term bonds that lost value when the Federal Reserve raised interest rates rapidly, which it had to sell to cover increasing withdrawals from depositors facing financial constraints from the prolonged downturn in the capital markets.

“Any bank that employs a similar bond strategy as SVB will also pay the piper if they are over-invested and need more assets to cover the bet,” says Dennis Ford, CEO of Life Science Nation. “Where were the risk managers who do the ‘worst-case’/’what-if’ scenarios? What if a global pandemic surfaces, a global war breaks out, and the feds start cranking the interest rates? Ironically, it might appear that the bank at the center of early-stage technology investment wasn’t modeling and assessing risk.”

The industry has been abuzz with emails, calls, and Twitter chat. Bruce Booth, partner at Atlas Venture in Cambridge, MA, urged calm in a tweet, writing that the real risk is contagion. Also what this situation means for companies: With only $250,000 of their deposits are insured, FDIC will issue certificates for the uninsured funds, placing them in line to get paid with funds it recovers while it has receivership. Much of the media coverage questions what further actions the government should take.

David Michael, managing partner at Anzu Partners, stated in a LinkedIn post: “Failing to act now would place the Biden Administration’s signature achievements in jeopardy. Inaction will erase billions of dollars – currently stranded at SVB – that were invested in companies by the US government. SVB may be ‘Silicon Valley Bank,’ but the impact of its failure hits small businesses nationwide. Handing a win to America’s rivals in the global competition for innovation and sustainable technologies would be a historic mistake.”

A FORTUNE article added that “So far, public biotech companies appear shielded from the brunt of the damage. Most of those Evercore ISI analyst Josh Schimmer surveyed said they have limited exposure and aren’t expecting any material risks to their balance sheets.” Industry leaders Tim Opler, Daphne Zohar, Sam Fazeli, and others summarized how the situation will continue to shape the biotech industry, especially private companies, in the latest Biotech Hangout podcast.

“I remember living through Lehman Brothers and the market collapse in 2000. This is the third time around seeing this,” said 23andMe co-founder/CEO Anne Wojcicki responding to the SVB situation. “It’s unfortunate how it can take down companies. We are living in a time when companies need to be fiscally responsible and mindful of how they are using their cash.”

Ford adds: “The SVB startup ecosystem imploding now begs the question of who are the players that will step in and fill the SVB void. When trauma like this happens, it also creates opportunity. Planet Earth is still in the golden age of life science technology, and tech startups will scramble and fight for their life like they do every day. New and existing players will surface to fill the void. They will round the displaced SVB clients up, pick up the pieces, and be on their way sans SVB.”

MEDIA COVERAGE (we will update this page daily with the latest media coverage from March 10-17):
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Friday/weekend of 3/10:

Monday, 3/13:

Tuesday, 3/14:

Wednesday, 3/15:

Thursday, 3/16:

Friday, 3/17: