Penn’s gene therapy layoffs are the latest in biotech belt-tightening in Philly and beyond

When the University of Pennsylvania’s gene therapy program laid off a quarter of its staff this month, Philadelphia’s biotech community was reminded once again that the promise of lifesaving therapies is not immune from financial pain.

Since the start of 2022, Philly-area biotech firms have laid off more than 500 people, according to an analysis in September by the Philadelphia Business Journal. Similar cutbacks have taken place in other U.S. life-science hubs, such as Boston and California’s Bay Area.

Biotech industry watchers say that high interest rates played a role, as seen in other business sectors. But biotech startups faced the added constraint that always comes with developing a new drug: It is a high-risk proposition, requiring years of testing and regulatory scrutiny with no guarantee the product will someday bring in revenue.

“It’s been a tough two years,” said Christopher Molineaux, president and chief executive officer of the trade group Life Sciences Pennsylvania.

Gene therapies, in particular, have a tricky business model even if they secure FDA approval, as they typically consist of a costly, one-time treatment for extremely rare diseases. Insurers may balk, and the customer base is small.

Penn officials declined to specify the number of job cuts at the gene therapy program, headed by prominent biotech scientist Jim Wilson. Citing an internal document, the Daily Pennsylvanian reported the number of layoffs as 84. Two of the laid-off employees told The Inquirer they had heard the number was in that ballpark, requesting anonymity so as not to harm their future job prospects.

Unlike academic departments that depend heavily on government grants, Penn’s gene therapy program gets substantial industry funds to conduct research and manufacture “vectors,” the inactivated viruses that are used to deliver beneficial genes inside human cells.

Asked about the job cuts, a university spokesperson provided this statement:

“As the pharmaceutical and biotech industry has faced financial challenges and curtailed their gene therapy activities, the GTP [gene therapy program] has lost funding that could not be made up from internal resources, in part due to the size of the organization. GTP leaders are working closely with industry partners and grantmaking agencies and organizations to pursue new sources of funding to continue promising research avenues.”

Still, amid hopes that the Federal Reserve may cut interest rates in the coming months, some biotech executives are optimistic that the industry is poised for a rebound. Shares of publicly traded biotechs have outperformed the rest of the stock market in recent months, a Wall Street Journal analysis found.

Molineaux, of Life Sciences PA, said the pace of innovation remains strong.

“If you take the long view, the scientific expertise and the biotech expertise that’s resident in Philadelphia is going to prevail,” he said.

Continued innovation will be key to any turnaround for small biotechs and larger, established drugmakers, said Richard T. Minoff, associate professor of practice in the pharmaceutical marketing program at Saint Joseph’s University’s Haub School of Business.

That’s because of the “patent cliff” looming before the industry, he said. By 2030, patents will expire for more than 20 drugs with nearly $200 billion in annual sales.

“People have to replenish their pipelines,” he said.

Large drug companies may try to do that by acquiring biotech startups with promising products, but with the economic climate still uncertain, they are taking it slow for now, Minoff said.

“I think a lot of companies are thinking of waiting a little bit to see proof of concept,” he said.

Molineaux blamed some of the continued caution on a key provision of the Inflation Reduction Act, signed into law in 2022 by President Joe Biden. Starting in 2026, Medicare will have the power to negotiate prices on 10 big-market drugs, with more to follow in subsequent years.

One bright spot locally came in late November, when Philly-based Aro Biotherapeutics announced it had secured $41.5 million in series B financing from Cowen Healthcare Investments and other investors.

Susan Dillon, cofounder and chief executive officer of Aro, credited the company’s fundraising success to the promise of its lead product: a potential treatment for a rare condition called Pompe disease. Aro recently announced it had started testing the drug’s safety in humans, with initial data expected in 2024.

“We’ve made tremendous progress,” she said. “And we have a set of investors that believe in what we’re doing and have stayed with the company.”

People with Pompe disease, the condition featured in the 2010 Harrison Ford film Extraordinary Measures, have difficulty breaking down a complex sugar called glycogen in their muscles, resulting in progressive weakness.

Aro’s treatment consists of a type of RNA that causes the recipient’s cells to make less glycogen. It is coupled with a type of engineered protein that was invented by company cofounder Karyn O’Neil and colleagues.

The company has 30 employees and is based in the Curtis building at 6th and Walnut Streets in Center City.

Staff writer Harold Brubaker contributed to this article.