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The collapse of Silicon Valley Bank is raising concerns about funding options for healthcare startups. Greg Bonnell speaks with David Toung, Senior Analyst, Argus Research, about the potential impact on the sector.
Greg Bonnell: Well, the collapse of Silicon Valley Bank (SIVB) and concerns about the health of the financial system have wide-ranging implications, including for the health care sector. Joining us now with more, David Toung, Senior Analyst with Argus Research. David, welcome to the program. Great to have you here.
There’s a lot been happening. We’re going to talk about health care. What’s the read through for health care with everything that’s been happening in the financial sector?
David Toung: Well, that’s an interesting question. There’s a couple of headlines that we discussed this week. We had Pfizer (PFE) announcing its acquisition of Seagen (SGEN), which is going to bolster its oncology portfolio. We think that is good for the industry to have this flow into M&A. And for Pfizer, they’re using the tremendous cash flow they got from the vaccine sales to expand their portfolio and also provide revenue offset for their patent expirations later on in the late 2025, 2030 period.
As far as the Silicon, SVB, impact on the health care industry, we noticed that there were a number of startups in the biotech space. They had deposits at SVB because SVB is very, very active in Silicon Valley startups, including tech companies and biotech companies. The government’s quick action to essentially provide safety for all depositors has really calmed that. At the same time, we’re monitoring what effect will be on the financial health of the biotech companies and to the extent that these biotech companies may be looked at as M&A targets by the larger biopharma industry.
Greg Bonnell: Yeah, when I think about when we try to unravel the Silicon Valley Bank story, a part of the story, at least as I understand it from reading some of the coverage, was the fact that the reason why these startups were trying to access their money in Silicon Valley Bank is because when it comes to venture capital and trying to raise funds through VC funding, that’s been a tougher space because of what we’ve seen in the past year. Even apart from Silicon Valley Bank, when you talk about startups just trying to access that kind of funding and that kind of startup funding, is that getting tougher?
David Toung: It appears that their funding is perhaps not as growing as it was over the past few years. I mean, in the pandemic, actually, there was quite strong inflows not just for developers of vaccines, but developers of tests, other health care tech companies. I wouldn’t say that it’s going away, but certainly there’s a more cautious stance on funding.
But at the same time, you’ve got the larger companies like Merck (MRK) or Pfizer or Bristol-Myers (BMY), GlaxoSmithKline (GSK) — GSK– that need to refill their pipelines. So they’re going to continue to look at the smaller biotech companies, which are developing leading edge therapies in oncology, immunology, and cell gene therapy so that they’ll be looking to bolster their own pipelines. I mean, these biopharma companies do not just invent all the new drugs internally. A lot of it are either acquired or in licensed.
Greg Bonnell: It’s incredible to think that everything that’s happened in the past couple days and all the headlines being dominated– today it’s Credit Suisse (CS), Silicon Valley Bank in recent days. You mentioned this Pfizer deal for Seagen. This is a multibillion dollar transaction that normally would have dominated in normal times. Take me a bit more through that deal and the significance of not only for Pfizer to take on Seagen, but as you said, some of the perhaps downstream effects we’ll see for the industry.
David Toung: Sure. For Pfizer, we know that their COVID-19 vaccine was very, very successful, so they’ve got a big, big chunk of revenue cash flow. And then if you look out 2025, 2030, they have a bunch of patent expiration and loss of exclusivity, so they’ll want to offset that.
And what Seagen acquisition does, it provides that new revenue– new products, new revenue. Seagen has four drugs that are ready in commercial stage. They expect to generate a little over $2 billion in revenue in 2023. And Pfizer says that it can– Seagen alone, the assets there could generate more than $10 billion by 2030.For a company the size of Pfizer, with their marketing heft, they can really expand the marketing for the Seagen portfolio. And it can also accelerate the development of the Seagen pipeline. So I view that as this is what the biopharmas– they look for new products. They have blockbusters.
At the same time, they have patent expirations. So they have to keep replacing that pipeline. And as I mentioned earlier, they don’t invent everything internally. They look for M&A in licensing to add to what they develop internally.
Greg Bonnell: Overall, it sounds like even though these are volatile times across sectors, volatility, as we know as investors, does create opportunity. And so going forward in health care maybe this year, in the coming years, is this the kind of volatility that we could see some action in the space that would be positive for investors?
David Toung: Well, one of the things that we are focusing on this year is that we’re essentially post-pandemic. Elective procedural volumes are coming back. People are doing more diagnostics for non-COVID, for things like scans. And so you’re going to see a return. We’re already seeing a return of elective procedures.
And that’s going to impact companies like makers of cardiovascular devices, of orthopedic implants. These are devices that improve people’s mobility as their joints get older. Or in the case of cardiovascular, like these replacement valves or things that enable– devices that enable the heart to pump blood more efficiently. These things happen as we get older, but these devices are very effective.So they were elective surgeries. People had deferred them. Now they’re coming back. So we’re seeing higher volumes of that.
And then in China, China is a fairly substantial market for medical devices. And the first quarter will be down in the sense that when they ended the zero tolerance policy, there was a surge of cases. But it’s not particularly virulent, so the cases will come down.
And the country is steering towards reopening. There’s a government stimulus. I think that’s all positive for procedural volumes and for sales of whether they’re devices or life science labs getting back up to speed and acquiring instruments and reagents that they do for research and for their development of new drugs.
