Ripple effects? California’s stem cell agency and the collapse of Silicon Valley Bank

It was a multibillion-dollar bank run that took place, at least partially, on a bus in Bozeman, Montana.

And it could involve some of the scores of companies backed with tens of millions of dollars in research awards from the $12 billion California stem cell agency.

The worst may have been averted, however, by an announcement Sunday afternoon (Pacific time) that said that uninsured depositors — those with accounts of more than $250,000 — will be made whole through the use of an industry-financed insurance fund.

The total of uninsured deposits is roughly $21 billion. The fund has $100 billion in it. Fees will be assessed on banks to recover the $21 billion, according to the announcement.

The situation involves companies that have ties to Silicon Valley Bank (SVB), either directly or indirectly via venture capital support. Some 2,500 venture capital firms banked with SVB.

The bank, founded in 1983 over a poker game, collapsed last week in the second-largest bank failure in U.S. history in an incredibly fast bank run that played out over the Internet. SVB was a prestigious mainstay in the tech and biotech industry. It was “the emblematic bank” — “the most systemically and symbolically important bank in the tech industry,”  one reporter wrote this weekend. 

While the bank is mainly known for its tech industry connections, it also is “inextricably intertwined” with biotech, according to STAT.

When SVB failed late last week, some of those affected were in Big Sky country.

“Max Cho found himself in the middle of a bank run while sitting on a shuttle bus in Montana,” the Wall Street Journal reported.

“The co-founder of insurance startup Coverage Cat, Mr. Cho had landed at the Bozeman airport Thursday and boarded the bus for the hourlong drive to a startup founders’ retreat in Big Sky.

“Mr. Cho took his seat and scanned the group. Fellow passengers were frantically tapping on their phones, rushing to move their money. ‘The bank run,’ he realized, ‘was actually happening.’”

The state stem cell agency did not have to worry about its own funds. They are held largely by the state and are not involved. But the collapse of the bank raised the possibility that some of the agency’s grant recipients would be endangered.

Lack of access to funds for salaries and other costs could threaten their survival or their ability to hit milestones on the research backed by the agency, known formally as the California Institute for Regenerative Medicine (CIRM). If awardees miss milestones, they miss the next installment of cash from CIRM.

The agency could also be asked by financially strapped companies to advance payments without waiting for the completion of milestones, in effect becoming an investor of last resort.  Regardless of actions today on uninsured deposits, the SVB failure could tighten financing generally for biotech firms, which were already facing harder times.

It is unclear if CIRM has a good grasp of the finances of all its awardees. Money matters may come up during the application review process, which is conducted behind closed doors. The reviews focus almost entirely on the science involved.

CIRM does ask clinical applicants to address “Plans for Risk Mitigation & Financial Contingency: Potential risks, mitigation strategies, associated costs, and non-CIRM sources of contingency funding.” Public summaries of the application reviews disclose almost nothing, however, on the financial strength of the winning applicants.

It is unclear if CIRM has a good grasp of the finances of all its awardees.

The names of the reviewers are also secret. It is unclear whether any have the financial and industry background to make a well-informed assessment of a company’s financial capabilities.

It is also unclear whether CIRM’s latest day-long application review session on Friday will see a deeper-than-usual financial analysis. The meeting involves the approval of awards of up to $4 million each for transactional research.

The identities of troubled companies have yet to surface widely in the media. But an article by Ron Leuty in the San Francisco Business Times had the following to say about one firm, Sangamo Biosciences, Inc., which had received nearly $8 million from CIRM.  Those projects are concluded, however.

“Sangamo Therapeutics Inc. (NASDAQ: SGMO) of Brisbane said ‘substantially all’ of its $34.4 million deposited at SVB are uninsured ‘At this time, Sangamo does not know to what extent it will be able to recover its cash deposits at SVB nor the timing of any recovery,’ the gene therapy company said in a Securities and Exchange Commission filing Friday.

“Sangamo had cash, equivalents and marketable securities totaling $307.5 million at the end of last year. The company last month said it would make no further investment in a sickle cell disease program, and last week it decided not to sell an undisclosed amount of shares from a shelf registration because of ‘unacceptable’ financing terms and ‘evolving market conditions.’”

This story originally appeared in the California Stem Cell Report. David Jensen is a frequent Capitol Weekly contributor.