Key takeaways
- The collapse of Silicon Valley Bank (SVB) has had ripple effects across the global stock market, but it is regarded as a symptom rather than a cause of an economic crisis.
- The biotech industry, which requires capital until commercialization kicks off, may be affected by SVB’s collapse. Investors may be more reluctant to fund tech startups, including young biotechs.
- The economic climate in the past year has not been favorable for the biotech industry, with a significant drop in initial public offerings (IPOs) and private biotech funding facing a slowdown.
- Biotechs may need to collaborate more and focus on programs that will drive value, while also managing funds efficiently.
The collapse of Silicon Valley Bank (SVB) on March 10, 2023, following the failure of other banks such as Signature Bank, Credit Suisse, and American First Republic Bank, has sent shockwaves across the global stock market. While the biotech industry may not be at the epicenter of the crisis, it is not immune to the effects of SVB’s downfall.
SVB, a tech-lender that had close to 50% of U.S. venture-backed life science companies as clients, had been forced to sell its treasury bonds at a loss due to surging interest rates in the past year. This move by the Federal Reserve to counteract rising inflation had caused panic among investors, leading to a bank run.
David Baram, president and CEO of U.S.-based Emendo Biotherapeutics, who has led the biotech’s seed and subsequent funding programs, believes that SVB’s collapse may have made investors reluctant to fund tech startups, including young biotechs. The biotech industry, which requires capital until commercialization kicks off, may be left high and dry as a result.
Moreover, the economic climate in the past year has not been favorable for the biotech industry. Severine Piot-Deval, healthcare fellow at Hedder and former portfolio manager at asset management company Amundi, notes that private biotech funding was already facing a slowdown in 2022, with a significant drop in initial public offerings (IPOs) and plummeting figures across the Asia Pacific (APAC) region and Europe as well. Companies have had to resort to other streams to generate funds.
Allen Shaw, CFO of Canada-based Portage Biotech, believes that the collapse occurred during a bad environment for startups to begin with. It will now cost companies more to get to the promised land, and they may have to focus on fewer programs and prioritize resource allocation and deployment. This could affect R&D biotechs that require capital until commercialization kicks off and often take a while to bear fruit.
So, what lessons can biotechs learn from the collapse of SVB and the current economic climate?
Collaboration is key
Shaw believes that one way for biotechs to avert the effects of a global financial crisis would be to collaborate with other biotechs. Collaboration can help to not only develop a stronger balance sheet to improve the cost of capital but also leverage people’s capabilities towards creating a worthy pipeline. This can help companies manage resources efficiently, especially in times of financial uncertainty.
Partnerships are a good idea too. Shaw recognizes that platform companies possess technology that can be adopted in various therapeutic areas. Companies that are only focused on oncology can have a collaboration with someone else who can utilize their program for autoimmune disease. Validation of a program on someone else’s nickel can make the program or platform more valuable.
Focus on programs that will drive value
Shaw also suggests that biotechs need to focus on programs that will drive value, rather than pandering to having a lot of drug candidates on a pipeline. This can help companies manage limited resources more effectively.
Baram echoes Shaw’s sentiments, saying that companies that have a limited amount of resources must decide which horse they are betting on. Having a lot of drug candidates on a pipeline does not necessarily drive value. Instead, biotechs should focus on a program that will actually drive value and have a larger market opportunity.
Efficiently managing funds
Baram suggests that companies can manage funds efficiently by swapping programs or focusing on a specific indication. This can help companies with limited funds to develop a product despite its possible efficacious potential.
Biotechs can also collaborate with contract research organizations (CROs) to outsource some of their research and development. This can help companies to manage costs and resources more effectively.
Looking towards the future
Despite the challenges facing the biotech industry, Baram remains optimistic about the future of biotech. He believes that the industry is at a time where technology in biotech has matured and has the potential to change healthcare within a decade or two. The industry is seeing advancements in gene editing, AI in pharma, gene therapy, and other areas, making these exciting times for the industry.
Moreover, Baram believes that funds are always available for promising biotechs. He regards this as the renaissance of the biotech industry and believes that it is an amazing time for the industry.
In conclusion, while the collapse of SVB has sent shockwaves across the global stock market, it has also provided an opportunity for biotechs to collaborate, focus on programs that will drive value, and manage funds efficiently. These lessons will be critical for biotechs seeking funding in the future, especially during times of economic uncertainty. Despite the challenges, the future of biotech looks bright, and it is an exciting time for the industry.
