HLTRF - Biopharma Exposure In SVB Financial Group And Investor Strategy

2023-03-17 16:16:22 ET

Summary

• Here's a long list of biopharmas exposed to SVB Financial Group.
• Many of these deposits will be uninsured.
• However, since SVB Financial Group was quite solvent otherwise, much of these deposits should be recoverable by these small companies.

A lot of people are asking me - am I invested in a company that has substantial exposure to the Silicon Valley Bank ("SVB")? The SVB failure is a major, major disaster for the American economy. The bank is owned by the SVB Financial Group ( SIVB ). SVB, as its name implies, is a bank in Silicon Valley, and its primary customers were venture-backed tech startups. During the pandemic, the bank got to acquire billions of additional dollars from its customers, which it put in safe, low-yield securities. As the Fed raised interest rates, other securities started producing higher yields, so these safe government securities where SVB put their money became essentially worthless. The bank was looking at billions of dollars in losses. They tried selling at loss, but that frightened customers, who called $42bn withdrawal in a single day. The bank fell.

Two other banks also fell this month - Signature Bank (SBNY) and Silvergate Capital Corporation (SI). But these did not have much exposure to the healthcare sector. Silicon Valley Bank did. On the bank's website - here - they list companies well-known to us hapless healthcare investors. Some of the names are - Reata Pharmaceuticals, Inc. ( RETA ), Editas Medicine, Inc. ( EDIT ), Twist Bioscience Corporation ( TWST ), HLS Therapeutics Inc. ( HLTRF ), Veracyte, Inc. ( VCYT ), Dice Therapeutics, Inc. ( DICE ), And so on. There were others.

So I thought I would put up a list of biopharma stocks with significant exposure in SVB. One good thing here is that since this was the Silicon Valley, a majority of the companies that parked their money in SVB were tech stocks. There were also a large number of Indian startups with cash in the SVB bank. The list of pharma companies with exposure to SVB is relatively small. But it is not insignificant, either. As noted here:

Healthcare has been a clear focus for SVB, even leading it to acquire healthcare investment bank Leerink Partners for $280M in November 2018.

CBS also noted that last year, the bank's total exposure to healthcare funds was around 12%, or approximately $20bn.

Besides biopharma, which is my main concern here, "The bank's clients include Oak Street Health, which is currently undergoing a $10.6 billion acquisition from CVS ." Another interesting aspect here is that SVB "held a $300 million term loan credit facility dated Sept. 30 for Oak Street with venture debt provider Hercules Capital." I mention this because Hercules Capital, Inc. (HTGC) is a sort of financier of last resort for many biopharma nanocaps. Interestingly, a slew of SEC filings have been filed by healthcare companies clarifying whether they held funds at SVB.

Even healthcare companies that did not hold funds in the bank rushed to file statements with the SEC clarifying their positions.

President Biden has assured SVB customers that their money is safe:

All customers who had deposits in these banks can rest assured that they will be protected and will have access to their money today.

However, investors are worried.

Other names I could glean from around the Internet include:

Sangamo Therapeutics (SGMO), Repare Therapeutics (RPTX), X4 Pharmaceuticals (XFOR), Protagonist Therapeutics (PTGX), Eiger BioPharmaceuticals (EIGR), Oncorus ( ONCR ) - here .

Following list from Reuters :

Vir Biotechnology ( VIR )

The biotech firm says it maintains operating accounts at SVB with about $220 million as of Friday.

ZEALAND PHARMA

The Danish drug developer has deposits totaling 162.6 million Danish crowns ($23.4 million) at SVB, which was about 15% of the group's liquid funds

Another source is the Kobeissi letter (requires a $129.99 monthly subscription, I got this from here ):

iRhythm $55 million, Sangamo Therapeutics $34 million (according to an WSJ article, iRhythm has a very high 26% exposure, followed by Oncorus 23%, Sangamo 11%, Eiger 6.9%, Enanta and Stem less than 5%, Repare and IO Biotech less than 2 and 1%)

More from Fierce :

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 is 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 (MRK) 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.

A number of companies put together press releases saying they have no deposits at SVB. These include - Citius Pharmaceuticals , Autolus Therapeutics , Eton Pharmaceuticals , Healthcare Triangle , Northwest Biotherapeutics and MEI Pharma .

More lists from Seeking Alpha :

The biotech with the biggest exposure disclosed so far is Sangamo Therapeutics (NASDAQ: SGMO ), with $34.4M in deposits, "substantially all of which is uninsured," according to an SEC filing.

While that figure represents ~11% of its cash, cash equivalents, and marketable securities, the company said it expects to be able to meet its payroll and supplier obligations.

Protagonist Therapeutics ( PTGX ) said that it has $13M in cash at the bank .

Eiger BioPharmaceuticals (NASDAQ: EIGR ) said it has ~$8.3M at SVB ( SIVB ), ~6.9% of its cash, cash equivalents and short-term securities.

Others include Atara Biotherapeutics (NASDAQ: ATRA ), Karuna Therapeutics ( KRTX ), and Enanta Pharmaceuticals ( ENTA ).

Veracyte ( VCYT ) said that the majority of its cash, cash equivalents and short-term investments "are not restricted by the Federal Deposit Insurance Corporation's (FDIC) action to take control of SVB."

Agenus ( AGEN ) said it would hold a conference call Monday morning to discuss its minority cash holdings at the bank.

Another couple of names from the Washington Post :

Axsome Therapeutics ( AXSM )

Pharmaceutical company Axsome Therapeutics said Friday that it had "material" cash deposits at Silicon Valley Bank and at another bank but that it believed the second bank's account and an existing loan would be enough for it to keep funding operations.

Darren Opland, a spokesman for the company, added later that the firm held 2 percent of its cash in Silicon Valley Bank.

Another interesting discussion I saw on Fierce:

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 mid-cap biotech companies," said analyst Zhiqiang Shu, Ph.D.

However, given that most companies polled by Fierce claimed no to minimal deposits, I think the nervousness could be unwarranted - for now.

For further details see: