Flaming Butterflies
The crisis at Silicon Valley Bank managed to outcompete US payrolls for space above the digital fold on Friday.
That speaks not just to humanity's penchant for slowing down on the highway to stare at a car accident, but to the very real possibility that depending on how things develop, the fallout from the SVB fiasco could be more consequential for determining whether the Fed re-escalates its tightening campaign than any single macro data point, barring a multi-sigma upside surprise.
I implore
Gosh, the comments from Goldman, Anderson and El Erian sound like the same reassuring chatter we heard from the street in late 2008 & even into early 2009.
SVB is not some obscure crypto player. Before we all chortle about VC players getting what they deserve, remember where many of the recent medical breakthroughs (such as Covid vaccines) came from.
Almost all modern medical and technological advances can be traced back decades to federal government (i.e., public, not private) funding.
Both government (funding for basic research) and private (commercial drug development) are required to bring new drugs to market. Research from NIH and academic labs identifies many possibilities for new pathways and therapies, but the vast majority will be dead-ends. VCs and industry are necessary to sift through the mountains of chaff to find the grains of wheat.
The failure rate for compounds moving from pre-clinical to phase 1 is about 90%, the failure rate from phase 1 to phase 2 is similar, and so on. Well less than one-thousandth of possible drugs identified at the pre-clinical stage ever make it to market, and only a small fraction of those are commercially and clinically successful. For those that are, the typical payback period, i.e. when the ROI turns positive, is several years.
Because the sifting process is so fantastically difficult and expensive, it requires rich economic incentives.
(Basis: a decade managing a biotech and pharma sleeve, focused on clinical stage “binary” names.)
JL – Thanks for the inside view. To some extent, the large pharma firms have outsourced much of their basic to VC-funded entities, which they look to buy once the probabilities of success look attractive, no?
I’ve read about VC-funded start-ups around Route 128 dropping projects, even ones they’ve sunk a lot of time and money into.
VC firms do not solely fund meal delivery and scooter rental start-ups.
Yes, big pharma now relies less on internal early stage drug development and more on buying de-risked drug programs.