SVB shock could have chilling effect on British biotech sector

Yourgene Health

13/03/2023 16:26

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      UK deal averted disaster for biotech start-ups
    

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      Some 40% of UK biotech firms were banking with SVB
    

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      UK aims to be life sciences "superpower"
    

  
    By Natalie  Grover and Maggie Fick
       LONDON, March 13 (Reuters) - HSBC  HSBA.L 's rescue of
the British arm of Silicon Valley Bank saved the heavily-exposed
UK biotech sector from collapse, but the fallout could hamper
funding in a sector the government sees as key to future
economic growth, industry executives said. 
    The move brought an end to frantic weekend talks between the
British government, regulators, and prospective buyers, as the
survival of many biotech start-ups hung in the balance and U.S.
and European authorities sought to stem contagion to the broader
financial sector.
    About 40% of the UK's biotech companies, developing drugs
for everything from cancer to heart disease, were banking with
Silicon Vally Bank's (SVB) British arm, according to the UK
BioIndustry Association (BIA).
    "This was absolutely crucial for our sector and companies
would be going down this morning if there wasn't a solution. So
on Friday, it was despair. This morning it was elation," said
Steve Bates, head of BIA, which represents over 500 companies in
the life sciences sector. 
    Given the time and money required to develop a drug,
early-stage biotech firms often operate for years without
revenue and depend on start-up friendly banks like SVB for lines
of credit to continue their research and development. 
    SVB UK has loans of around 5.5 billion pounds ($6.66
billion), deposits of about 6.7 billion pounds and about 3,000
UK clients, according to HSBC.
    Around 16 tech and life sciences companies in Europe have
disclosed about $190 million in exposure to SVB in the United
Kingdom and the United States. UK-based companies, including
Diaceutics  DXRX.L , Ourgene Health Plc  YGEN.L  and Windward
Ltd  WNWD.L  have said they have exposure to the bank's UK arm. 
    Adrian Rawcliffe, CEO of Adaptimmune Therapeutics, a
NASDAQ-listed but British-headquartered cancer company, said
that while bigger biotech firms like his have funding
alternatives, "for smaller private start-ups, SVB was one of the
few banks who really understood the risk profile of early stage,
venture-backed biotech companies".
    Dima Kuzmin, managing partner of London-based investment
firm 4BIO Capital, which does not bank with SVB directly but has
portfolio companies exposed to the bank, agreed.
    Many entrepreneurs and CEOs of small start-ups have opened
personal accounts with SVB in addition to corporate ones.
    "Several CEOs I know and work with have had all of their
personal cash with the bank - like literally all of it - because
this was their main bank. So you can imagine the scale of
anxiety," Kuzmin said.
    He said following the sector-saving buyout by HSBC, "concern
remains over the potential systemic effects". 
    Worst case, he said, investors will become more concerned
about liquidity in the sector and start drip-feeding the
biotechs with smaller funding rounds.
            
    DIFFICULT FUNDING
    The turmoil follows a difficult year for biotech funding
globally. Rising interest rates, recession fears and
geopolitical shockwaves saw investors pull back from anything
considered risky last year. 
    In the biotech sector globally, there were only 47 initial
public offerings (IPOs) last year that raised about $4 billion
in total, compared with 152 offerings in 2021 that had raised
over $25 billion. 
    "And then in 2023, as the market was starting to come back,
a shock like this has a chilling effect on the amount of money
that would otherwise go into developing new medicines," said
James Peyer, CEO of U.S.-based Cambrian Biopharma.  
    The SVB collapse also comes after the UK's biggest listed
drugmakers GSK  GSK.L  and AstraZeneca  AZN.L  warned last month
that the UK government's ambition to become a life sciences
"superpower" has been hampered by a discouraging tax environment
among other problems. 
    Though the country has renowned scientific research centres
at Oxford and Cambridge Universities, it has struggled to
convert that into a thriving biotech sector attracting the kinds
of funds the United States does, experts say.
    "The climate for biotech companies, especially in the health
space, is getting harder," said Claire Skentelbery, director
general of EuropaBio, an industry lobby representing 2,600
biotech companies in Europe.
($1 = 0.8260 pounds)

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FACTBOX-Which companies are affected by SVB collapse?   
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ANALYSIS-SVB's lightning collapse stuns banking industry    
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 (Reporting by Natalie Grover and Maggie Fick in London; Editing
by Josephine Mason and Emelia Sithole-Matarise)
 ((natalie.grover@thomsonreuters.com; Twitter: @NatalieGrover;))