Silicon Valley Bank Shutdown Sends Shockwaves Through Life Sciences, Lab Real Estate
Silicon Valley Bank’s heavy focus on funding life sciences made this weekend a dramatic one for those in the biotech space, as the institution’s closure led many to picture worst-case scenarios of startups being unable to pay employees and going under themselves.
Action by the federal government to backstop deposits at Silicon Valley Bank in recent days has quelled those fears. As more details on the ripple effect of SVB’s closure and the financial position of real estate firms and startups with exposure to the bank come into focus, the immediate danger seems to have been contained.
But there may be a long-term impact of the crash. Some are already speculating this will slow down venture capital funding the rest of the year and potentially fuel more M&A opportunities for Big Pharma firms.
MassBio released a statement Sunday saying, “the collapse of Silicon Valley Bank has sent shock waves through our industry, both here in Massachusetts and beyond. We know that many of our members have been severely impacted by such a sudden and unexpected development.”
Biocom California declined to comment.
CNBC’s Meg Tirell noted there are still fears about risk, especially among early stage biotech companies, and that SVB’s collapse was a “speeding up of the cleaning up” of firms coasting on the exuberance and flood of capital into the market in 2021, which might eat into demand for lab space.
SVB’s footprint in the life sciences and biotech world is vast. In its Q4 2022 report, the bank said it has offered services to half of 2022’s venture-funded healthcare companies and was involved in 44% of health and tech IPOs. Roughly 12% of its $173B of deposits were for life sciences and health companies.
In the run-up to Friday’s crash, many biotech founders exhibited behavior similar to those in the wider VC world last week, racing to move capital from the now-shuttered bank after news Thursday of a plan to sell shares to cover security losses sparked panic, Endpoints News reported.
As more information comes out, a clearer picture of the risk faced by biotech companies is coming into focus.
Boston-based Ginkgo BioWorks, which owns Zymergen Inc., is one of the firms with the largest amount of deposits held at SVB, $74M. In an 8-K statement, Ginkgo said that “only the cash balance of the Company’s wholly-owned subsidiary Zymergen Inc. is held in deposit accounts at SVB, representing approximately $74 million or 6% of the Company’s cash and cash equivalents as of December 31, 2022. The Company does not maintain any other material accounts or lines of credit with SVB.”
Zymergen was in the process of converting a 300K SF site in Emeryville, California, where it had signed a long-term lease with BioMed Realty, into a new headquarters before it was purchased by Ginkgo in 2022. Ginkgo CEO Jason Kelly said in October he hoped to turn the space into a biotech incubator. Ginkgo didn’t respond to a request for comment, and BioMed Realty said, “like many, we are carefully monitoring the situation with Silicon Valley Bank. We will stay in close contact with any affected tenants, including Zymergen.”
Vir Biotechnology maintained around $220M of open accounts with SVB. It holds an $850K a month, four-floor lease at 1800 Owens St. in San Francisco, at the Icona Labs building, which was purchased by KKR in 2021 and run by Longfellow.
Another larger depositor in SVB, Sangamo Therapeutics, revealed it had $34.4M in the bank. Its 8-K noted that all the money it held at SVB was uninsured, and the company “does not know to what extent it will be able to recover its cash in deposit at SVB nor the timing of any recovery.” It also said it will continue to be able to meet its payroll and supplier obligations.
Sangamo leases HQ space at 7000 Marina Blvd. in Brisbane, California, and at 501 Canal Blvd. in Richmond, California. Sangamo didn’t respond to press inquiries.
Many of the largest life sciences landlords are still figuring out the extent of their exposure. Healthpeak hasn’t filed an 8-K statement (BioMed Realty and Longfellow Real Estate Partners aren’t publicly traded and don’t need to file such disclosures). Healthpeak also hasn’t responded to requests for comment, and Longfellow declined. In an 8-K form filed with the Securities and Exchange Commissione, Alexandria Real Estate Equities noted that it doesn’t have any loans with, or amounts due to or from, SVB. It has one lease in the Greater Boston market, 35K rentable SF, to an SVB affiliate, which is worth $1.7M annually, or 0.08% of total annual rental revenue.
Alexandria’s 8-K did note that “some tenants and venture investments may have banking relationships or other business relationships with SVB.” ARE will be working with those tenants to replace security deposits via SVB with “another acceptable security deposit as required under their lease agreement.” As of March 10, the aggregate security deposits in the form of letters of credit issued by SVB and/or its affiliates to Alexandria total $108.3M.