Large and growing business sectors typically attract commercial lending interest from all over, but the Bay State’s burgeoning life sciences industry is different.
Even as Massachusetts is actively courting life sciences business – most recently with the help of incentives offered through a 10-year, $1 billion spending plan signed by Gov. Deval Patrick last month – the budding biotech market isn’t translating into much business for state banks. Indeed, banks with significant biotech lending portfolios can be counted on one hand.
Santa Clara, Calif.-based Silicon Valley Bank alone claims to have cornered more than half of the market when it comes to loans made to local life sciences companies.
SVB, a $7.2 billion commercial bank with one Massachusetts office in Newton, employing 100, provides banking services including commercial loans to “far greater than 50 percent of the biotech companies here,” according to Michael Hanewich, who has led SVB’s local life sciences division for the past nine years.
“We are known as the financial institution to go to for commercial banking services for biotech, and not only in Boston,” Hanewich said. California is the bank’s other major market.
Worcester’s Massachusetts Biomedical Initiatives President and CEO Kevin O’Sullivan backed up that claim.
“Silicon Valley by far is the most active,” in lending to life science companies, he said.
Citizens Bank said it has about 50 life sciences borrowers, and Senior Vice President Scott Haskell said the bank’s life sciences divi-sion has been so successful since he started it in 2001 that it will be going national later this year.
“You should look to see us expanding,” he said, noting that $160 billion Citizens’ footprint already extends to Chicago as well as inter-nationally, since it’s owned by the Royal Bank of Scotland.
Christopher Kennedy, co-chair of the financial committee of the Massachusetts Biotechnology Council, said three other banks jump to his mind as institutions a biotech company might look to for banking services: Comerica, Bank of America and Square One Bank. All have Massachusetts presence, but like Silicon Valley and Citizens, are not Massachusetts-based.
Start-up firms, which make up the majority of Massachusetts’ biotech market, also get funding from “venture debt providers” – funds with investors who want in on the biotech market – and partnerships or mergers with major pharmaceutical firms such as Novartis or Pfizer, he said.
There’s no question life sciences lending is risky, meaning that at least at the outset, many local banks aren’t interested.
“A lot of the larger companies in life sciences are more mature, and they Â… are already dealing with banks and have been for some time. But the ones that are startups usually get seeded with venture capital,” said Kim Meader, head of commercial lending at Salem Five Bank, a $2.7 billion mutual based in Salem.
Size Matters
Some of the larger companies may not have bank lending relationships yet, because the time and cost to bring a new drug to market (10 to 15 years and up to $1 billion, respectively) can’t be supported by a bank, he said.
On average, a $1 billion bank can legally loan up to $20 million to a single borrower, although such a loan would be unusually large.
David Floreen, senior vice president for government affairs at the Massachusetts Bankers Association, said community banks may not be a practical source of funding for life sciences businesses for such reasons. But he said local banks are interested in lending to ac-counting firms and others who support them.
Haskell said life sciences loans may be risky, but Citizens has never had a loss.
The bank takes a hard look at which venture capital firms are backing start-up ventures as well as the company’s proposed manage-ment teams and business plans before determining whether to enter a banking relationship, he said.
Opportunities in life sciences lending are huge, Haskell said, noting that today, one in three venture capital dollars nationally goes to some type of medical or biotech interest.
Boston, with its universities and hospitals, “is an epicenter for attracting that capital,” he added.
