The federal government's takeover of Silicon Valley Bank on Friday sent shock waves through the medical sector and hammered biotech stocks.
Silicon Valley Bank, under the SVB Financial Group parent company, provides financial services for a number of health care players, including early-stage biotech companies. But the Federal Deposit Insurance Corporation closed SVB on Friday and took control of all its insured deposits.
"All insured depositors will have full access to their insured deposits no later than Monday morning," the FDIC said in a written statement. "The FDIC will pay uninsured depositors an advance dividend within the next week."
The news caused widespread panic and prompted the 800-plus stocks in IBD's Medical-Biomed/Biotech industry group to tumble a collective 3.5% on today's stock market. Shares of SVB Financial Group were halted Friday after plummeting 62.8% to 39.40.
Biotech Stocks: VC Run On SVB
The saga began Wednesday when SVB announced a plan to sell stock and convertible preferred shares to fill a $1.8 billion hole in connection with a major sale of securities it was holding. In response, venture capitalists reportedly began pulling their money from the bank, according to Reuters.
Biotech stocks skidded 1.1% on Wednesday and an additional 2.6% on Thursday.
The news is a blow for early-stage businesses. Last year, SVB handled financials for 44% of U.S. venture-backed technology and health care initial public offerings, according to the bank's fourth-quarter presentation.
But, according to a report from Mizuho Securities, most small- and midcap biotech companies report having little exposure to SVB.
"Responses thus far indicate that near/medium/longer-term exposure to the small- and mid-cap biotech industry will likely be security specific," Mizuho analysts said. "However, there are initial questions from investors about any sort of contagion risk, which may be more thematic in footprint."
On that note, as biotech stocks hit the skids, so too did shares in the banking sector.
Shares of PacWest Bancorp, Western Alliance Bancorporation, First Republic Bank and Signature Bank fell 15%-38%. Shares of IBD's Banks-Super Regional, Banks-West/Southwest and Banks-Northeast industry groups tumbled a respective 2.4%, 3.7% and 3.5%.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
