Biotech companies are racing to assess the damage from the failure of SVB Financial Group, the latest problem faced by many startups in raising money.
SVB, which collapsed there after a run on assets, plays a big role in the financing of early-stage life sciences and care companies. The health company supported by equity accounted for 12% of SVB’s $173 billion in deposits and 36% of the $168 billion in funds held on the balance sheet at the end of the year.
The SPDR S&P Biotech ETF closed down 3.9% while the Nasdaq Biotech Index fell 1.6%. The S&P 500 fell 1.5%.
Like technology companies, biotech companies find themselves in a difficult place to decide what to do with the money held in SVB, “an important financial partner” for the industry, said John Maraganore, former head of Alnylam Pharmaceuticals Inc. which involved many investment companies. and Biotechnology Board, said in an interview.
The collapse of the most notorious bank for venture-backed companies deals another blow to an industry facing a long slump. Biotech companies have come under intense pressure for more than a year as pandemic-fueled growth cools and investors begin to shy away from risky assets amid rising interest rates.
Most biotechs have already assessed their exposure and are starting to develop ways to reduce it, Maraganore said Friday. He said the last 24 hours have been full of email exchanges and board calls about how to proceed.
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Labs at the startup’s incubator in Cambridge were abuzz Monday morning as SVB’s collapse appeared imminent, said Isaac Stoner, chief executive of Octagon Therapeutics.
“People in the lab, people in the office, everyone is talking about it,” he said.
Venture capital firms that fund other types of emerging healthcare companies are also feeling SVB’s tremors. Bill Geary, co-founder of Flare Capital Partners, a venture firm focused on early-stage health technology investments, said all of the firm’s portfolio companies were somewhat affected. Geary called the implications “profound” because SVB plays such an important role in the health care ecosystem. As interest rates continue to rise, the SVB meltdown may contribute to even more pessimism about the ability to raise capital, Geary said.
“You can’t just look at one of these things in isolation,” he said. “They all have a complex negative impact. This is just one example of how important financial institutions in the value chain are greatly affected by rising interest rates.
So far, public biotech companies seem to have been protected from harm. Most surveyed Evercore ISI analyst Josh Schimmer said they have limited exposure and don’t expect material risks to their balance sheets.
“I haven’t found any companies that are at material risk from this perspective, but there may be disruptions down the road,” Schimmer said in a discussion in the Twitter space.
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