Bio factory demand slumps as investor cash dries up. What does the future in Philly look like?

They call themselves Speed to Market, a group of life sciences and real estate professionals who find, build and sell manufacturing space for biotech employers around Philadelphia.

During the COVID pandemic, they began meeting remotely every week to match sites and builders to scientists and production facilities amid the flood of investor cash that boosted start-up and early-stage manufacturers toward commercial production.

By 2022, “we were tracking more than 2 million square feet of potential life science facilities” in the area — about the size of the Comcast towers or a larger-than-usual Amazon warehouse, says one of the group’s leaders, Tim Kelly, a partner in Malvern builder Norwood Co., which built the Centocor and Cephalon biotech centers.

But more than half those projects have since been canceled or delayed, “and we’re not sure how many of those [remaining] will come to fruition,” Kelly says.

Big investors have cut back on funding biotech start-ups to focus on artificial intelligence and other technologies, and banks are backing off financing until more tenants are ready to commit.

Brandywine Realty Trust, the dominant commercial landlord in Center City and the Main Line suburbs, last fall delayed plans for a life sciences-focused tower at Schuylkill Yards. Plans for other multi-tenant biotech projects in East Falls, Horsham and Upper Merion have stalled as biotech firms retrench.

In an extreme case, Exelixis, a California company producing cancer gene therapies, walked away from its year-old Radnor hub last winter, laying off newly hired staff, though also enabling Holy Family University to buy at a discount the equipment left behind for its proposed biomanufacturing courses — a bet on the industry’s long-term future in the region.

With less to do, the Speed to Market group meets less often.

But Kelly convened members recently to talk about the region’s biomanufacturing future after the China-based owners of the region’s biggest gene and cell therapy manufacturing facility, WuXi AppTech Advanced Therapies, announced plans to sell its 400,000-square-foot, 800-worker Navy Yard-based labs, under pressure from Congress, which is suspicious of U.S. biotech’s reliance on firms close to China’s government.

Speed to Market members were mostly glum.

“There’s overcapacity,” said Eric Hacherl, a biopharma start-up executive and previous vice president for manufacturing at Roche’s Spark Therapeutics. Roche thinned its former 800 Philadelphia staff with a series of layoffs last year and the cancellation of a key Spark diabetes program.

“In the early 2020s, a lot of these [start-up gene and cell therapy] companies were getting money thrown at them,” Hacherl recalled. “Contract manufacturers wanted to make products for them — they saw green everywhere. And they started building capacity.”

Old factory sites from Princeton to Wilmington were proposed as biotech lab, manufacturing and office centers.

“Then funding dried up,” Hacherl said. “A lot of start-ups went out of business or shrunk their pipelines. A lot of really good products got shelved. So the contract manufacturers are now starving for business until money starts flowing again.”

Hacherl said biotech boosters are trying to keep their courage up. “We told each other interest rates had to drop, or that we had to get through the election — whoever wins — so the uncertainty would go away.”

He and others say the yearly industry gathering at the biotechnology investment conference, sponsored by JPMorgan in San Francisco Jan. 13-16, will inject a tone of “exuberance” and renewed funding.

“A lot of landlords aren’t lending anymore for improvements,” said Tim Conrey, managing principal of the Philadelphia office of Scheer Partners, who arranges real estate leases and purchases for life-science companies. “Why give a tenant $500 a square foot for improvements on a building that right now is worth maybe $100 a square foot?”

Banks are also skittish. Developers “need 70% tenancy to get financing in advance now,” said builder Kelly, versus 50% or less during the boom.

“I’m in manufacturing, and I’m a little bearish right now,” said John Laino, a onetime lab technician at Pfizer who rose to head of a vaccine manufacturing unit at Merck before founding his own consulting firm, Execucell.

Contract manufacturers are competing with Big Pharma companies for products to keep their plants busy, Laino said. Some biotech pros are hoping Pennsylvania Gov. Josh Shapiro acts on proposals to invest state funds in biotech facilities, a practice Massachusetts and Maryland have used to lure manufacturers.

“The governor has made life science his initiative. Something in this year’s budget could push us,” said Lou Kassa, president of the Pennsylvania Biotechnology Center, a fully leased Doylestown biotech incubator that is searching for a few more tenants for its B+Labs site at Brandywine Realty Trust’s Cira tower. The center has more than 50 tenants in Doylestown and 22 in Philadelphia.

Kassa and others said Big Pharma continues to invest even as private equity funds have pulled back. He noted GlaxoSmithKline’s plans for an up-to-$800 million vaccine factory at its existing facility in Marietta, Lancaster County.

But overall, “there is a visible increase in the amount of laboratory space that was occupied before COVID but is now available.

During COVID, there was a trend to repurpose old spaces as laboratories for prospective biotech companies, but now there is a noticeably high level of vacancies for those as well, said Joe Consiglio, founder of Strategic Process Consulting, a biomanufacturing consultant in Boston, whose biotech sector is “two years ahead and two times as big as Philadelphia,” but still “decimated” by the lack of new investment.

“We are seeing smaller [contract manufacturers] squeezed out,” Consiglio said. “Big Pharma has all the orders, these days.”

Manufacturing investment in particular “has shifted to the old-line pharma companies,” said Eric Bohn, a partner at JacobsWyper Architects, a Philadelphia firm, where he’s been designing life-sciences projects for more than 30 years.

“The slowdown has impacted the incubator space,” said Conrey, the broker.

He said he wouldn’t be surprised if one such project designed to lure start-ups — the SmartLabs development at Drexel — ends up with the university itself as a lead tenant.

It’s a comedown from the early 2020s, when President Donald Trump’s Project Warp Speed COVID vaccine project “pushed so much capital into the market. But that’s backed off now,” Conrey added.

Kelly said he’s still “an optimist,” pointing out that there’s still demand for specialized production space at some of the most promising small biotech companies.

Conrey cited the example of Imvax, which is developing a glioblastoma vaccine in the former Curtis Publishing plant near Washington Square.

“Their size is much smaller” than the contract labs, he noted. “It still costs as much as $1,000 or $1,200 a square foot to build. So you need owners like Curtis has [owned by Ken Glazer’s Keystone Development + Investment] to put their own money in.”