"When the party's over, it's time to call it a day. They've burst your pretty balloon and taken the moon away. It's time to wind up the masquerade. Just make your mind up the piper must be paid." ~ Jule Styne
Politics. If we say nothing else about the recent revelations of corporate incest in Santa Clara Co., CA we should at least acknowledge the self-described center of American innovation has an unhealthy relationship with American politics.
Puck’s Teddy Schleifer recent article, The Ron Conway Bailout tells you what you probably already know. The rescue of SIVB started out normally – cash available to depositors up to the insured limit with balance paid out as assets are liquidated. Over last weekend it took a sharp turn toward bailout.
A trophy and a juice box for everyone!
The change in tone and direction was, of course, brought to you by well placed calls to people whose power, at least in part, can be attributed to their comfortable relationship with the owner of the contact list in which they find themselves.
We should not pretend the furtive calls from the SIVB cabal, including the insufferable “All In” podcast crowd of David Sacks, Chamath Palihapitiya and Jason Calacanis, is anything new.
Nor should we pretend it is benign. From the railroads of the late 19th century to the defense contractors of the mid-20th to the biotechnology industry of the 21st, government can be a fickle partner. There one day with pockets of cash and regulatory forbearance, “inviting” you to testify the next.
If you live by the politics, you had better be prepared to die by it.
Policy. While low interest rates get much of the blame for the excesses of SIVB and the delusion of power among certain venture capitalists, another culprit – overfunding of life sciences – has played an outsized role.
The National Institutes of Health gets $42B in funding annually. Most of that is divvied up among major research universities like Stanford in the form of research grants. The importance of these grants stretches well beyond the specific purpose of the trial to fund university operations.
In recent years, universities have become less interested in the success of individual research projects and more in maintaining the revenue stream. The HHS Office of the Inspector General has reported that about half of grant recipients fail to report the results of their trials, as required by law.
The result has been some half-assed discovery – the two most epic examples being Alzheimer’s research and mRNA technology – that has, nonetheless, often found a home in the not-particularly discerning funding apparatus.
In short, despite hundred of billions of dollars poured into research on cancer, Alzheimer’s and heart disease, there is little to show for it in the last decade or so.
Too much money chasing too little science only makes for some bad trades in the life science sector that now emerge as tides of all sorts recede.
Power. It is easy to think of the SIVB fiasco in isolation, but it would be a mistake. Demands to save depositors were quickly followed by CNBC’s talking heads’ prognostications that the situation demanded a dovish pivot or, at a minimum, a pause in interest rate hikes.
The hope – it is probably really a prayer at this point – is that a return to free money will do what a wide-open IPO window, the SPAC king, and venture debt not could not: resuscitate a bunch of really bad investments.
Yes, really.
In the power dynamic between the titans of technology and life sciences you have, on the one hand, a group of people defending a bad trade, using the risk to American innovation and higher unemployment to deflect from the obvious self-interest.
On the other, you have the FOMC.
Have a great rest of your long weekend.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
